Gen X is a critical segment of the U.S. economy that is often overlooked. Despite making up just 27% of households in 2022, they accounted for more than 33% of consumer expenditures, outpacing even Millennials.
As of August 2024, Gen X’s discretionary spending fell by 2% year-over-year, indicating a marked shift in behavior.
One of the primary reasons for this slowdown is the rising share of household spending on necessities.
These include housing, utilities, and insurance, typically paid through non-card channels like ACH and bill pay. As necessity spending continues to increase, it squeezes the funds available for discretionary purchases.
Another key factor is Gen X’s shift toward saving and investing as they age. BofA’s data indicates that investments per Gen X household are 40% higher than the average across all generations, suggesting that many in this cohort are prioritizing long-term financial security over short-term consumption.
This trend is particularly strong among those approaching retirement, as over a third of Gen X plans to retire within the next 10 years, and many are increasing their contributions to 401(k) and other investment accounts.
Additionally, Gen X faces unique financial pressures from both ends of the generational spectrum. Often referred to as the “sandwich generation,” they are frequently responsible for supporting not only their aging parents but also their adult children.
A rising number of young adults aged 18 to 34 continue to live at home, and many rely on their parents for financial support. The U.S. Census Bureau reports that 23% of 18- to 24-year-olds live at home, while the number of 25- to 34-year-olds doing the same has doubled since 1960, reaching 10% in 2023.
This adds to the financial burden on Gen X households, further limiting their ability to spend on non-essential items. While younger generations have seen robust wage growth in recent years, helping to boost their discretionary spending, Gen X has lagged behind.
BofA Securities data shows that their wage growth has been slower compared to Millennials and Gen Z, making it harder for them to absorb rising costs of living while maintaining previous levels of discretionary spending.
However, despite this slower wage growth, the expense-to-wage ratio for Gen X has remained relatively stable over the past few years, indicating that their reduced spending may be more a matter of choice than necessity.
Going forward, while Gen X may eventually benefit from the “great wealth transfer” as Baby Boomers pass down trillions of dollars in assets, those financial windfalls are likely years away.
In the meantime, the financial pressures of supporting both older and younger generations, combined with a focus on saving and investing for retirement, suggest that Gen X’s reduced spending may continue for the foreseeable future.
Source: Economy - investing.com
