As the baby boomer generation approaches retirement, their spending habits remain exuberant, buoying the economy. In stark contrast, younger individuals experience declining expenditure patterns. A primary catalyst for this disparity lies in the burden of student loans, set to make a comeback later this year. While boomers revel in their financial freedom, the younger generation grapples with mounting debt, curtailing their spending power.
A financial head start
A crucial determinant of boomers’ financial advantage stems from their housing investments. Unlike younger individuals, boomers seized the opportunity to purchase homes when prices were significantly lower. Consequently, they now reside in properties that have appreciated in value but have become increasingly unaffordable for younger generations. Affordable housing, coupled with the absence of student loan debt, liberates boomers to allocate greater funds towards discretionary expenses.
So, while inflation lingers and people of all ages deal with high interest rates across the US, boomers hold the most spending power. Boomers’ spending might frustrate other generational cohorts, who are at an economic disadvantage comparatively. However, the fact remains that spending is what’s keeping the economy going, regardless of who does it.
Boomers’ inclination for frivolous spending serves as a crucial stabilizing factor for the US economy. Their willingness to splurge on non-essential items and experiences injects vitality into various industries. From luxury goods to leisure activities, boomers’ extravagant purchases create a ripple effect, bolstering businesses, employment opportunities, and overall economic growth.
Boomer spending stays in the country
Boomers, being more established and financially secure, tend to stay within the United States. While boomers stimulate economic expansion, younger individuals find themselves constrained by financial burdens. The resurgence of student loans further diminishes their purchasing power, necessitating budgetary restraints and more limited expenses.
Moreover, the transient nature of employment, educational pursuits, and life changes forces younger generations to allocate funds towards essential needs rather than discretionary items, compounding the disparity in spending patterns between generations.
For all the hype around digital nomads and remote work, these new employment trends also mean younger generations can’t always follow established roadmaps for financial freedom. When it comes to digital nomads in particular, the trend means spending doesn’t always feed the US economy. Young people working from abroad, let alone living abroad, spend their money elsewhere, taking it out of our economic feedback loop.
Why younger generations are behind
And, as alluded to above, younger generations also deal with having a slower start to their financial journeys. While millennials and Gen Z may have fed into FOMO and YOLO spending, many realize they need to live frugal lives to establish the groundwork for a financial future.
In addition to housing, baby boomers also entered the workforce during a period of more affordable higher education. College tuition costs, even 20 years ago, were significantly lower compared to today’s standards. That, in turn, enabled many boomers to pursue degrees without incurring substantial student loan debt. This advantageous situation allowed them to invest their earnings in other areas, such as housing. Today boomers can spend on leisure activities, ultimately contributing to the country’s present financial stability.
The baby boomer generation, with their unprecedented wealth and favorable financial circumstances, assumes a pivotal role in sustaining the American economy. While the younger generation faces mounting financial pressures, the boomer generation’s indulgent spending fuels economic stability. However, it is imperative to address the growing economic disparities between generations and explore strategies to alleviate the burden younger generations face for their future.
