Why Is Gen X’s Spending Slowing Down?

Analysts at BofA Securities have noted that internal card data reveals a significant decline in discretionary spending among Generation X compared to other age groups.

Generation X, often overlooked, plays a vital role in the U.S. economy. Although they represented just 27% of households in 2022, this group accounted for over 33% of consumer expenditures, even surpassing Millennials in spending.

As of August 2024, discretionary spending for Gen X has dropped by 2% year-over-year, signaling a notable change in consumer behavior. One major driver behind this decline is the increasing proportion of household budgets allocated to essential expenses.

These essentials—including housing, utilities, and insurance—are typically paid through methods like ACH transfers and bill payments rather than credit cards. The growing emphasis on these necessary expenditures has left less available for discretionary items.

Additionally, as Gen X ages, there is a clear shift towards saving and investing. BofA’s data reveals that the average investment per Gen X household is 40% above the overall average for all generations, reflecting a prioritization of long-term financial stability over immediate consumption. This trend is especially pronounced among those nearing retirement; more than one-third of Gen X intends to retire within the next decade, prompting many to increase their contributions to retirement accounts.

Gen X is also experiencing unique financial challenges from both younger and older generations. Often described as the “sandwich generation,” they frequently find themselves in the position of supporting both aging parents and adult children.

A growing number of young adults aged 18 to 34 are living at home and rely on their parents for financial assistance. Recent reports from the U.S. Census Bureau indicate that 23% of individuals aged 18 to 24 live at home, while the proportion of 25- to 34-year-olds in similar circumstances has doubled since 1960, reaching 10% in 2023.

This situation increases the financial strain on Gen X households and limits their capacity for discretionary spending. While younger generations have experienced substantial wage growth recently, boosting their discretionary spending, Gen X’s wage increases have been comparatively sluggish.

BofA Securities data also shows that while wage growth for Gen X has lagged behind that of Millennials and Gen Z, their expense-to-wage ratio has remained relatively stable in recent years. This suggests that their lower level of spending may be more about choice than necessity.

Looking ahead, Generation X could potentially benefit from the anticipated “great wealth transfer,” as Baby Boomers are set to pass down substantial assets. However, these financial gifts are likely still years away. In the interim, the combination of supporting both older and younger family members and a focus on retirement savings indicates that Gen X’s reduced spending behavior may persist in the foreseeable future.