U.S. PERSPECTIVES
Wayne Best, Senior Vice President/Chief Economist
Visa projects consumers age 60+ will continue to drive U.S. spending for the next five to 10 years
December 17, 2018 – While millennials have dominated headlines in recent years, baby boomers (those born between 1946 and 1964) have continued to dominate consumer spending in the U.S. In fact, consumers over 50 now account for more than half of all U.S. spending. They are also responsible for more spending growth over the past decade than any other generation, including the coveted millennials.
As a group, this over-50 crowd should continue to be a major force in U.S. consumer spending, especially as those over 60 years old drive growth over the next five to 10 years, according to Visa Business and Economic Insights.
This is happening for two reasons: demographics—there are simply more consumers over 60 than there were 10 years ago—and behavior. Baby boomers, compared to generations that preceded them, are retiring later, holding on to more debt and maintaining budgets for travel and other discretionary treats.
Last year, older borrowers held higher per-capita balances in every debt category except credit card debt, compared to 2003. Although they are less likely to revolve on their credit cards, those who do are more likely to carry a higher balance. There is a downside to this: Increased debt, combined with a continued hangover from the housing crisis and increasing healthcare expenditures, could result in an increased credit risk among baby boomers.
Boomers are buying more online
As boomers stay in the workplace longer, their spending habits also appear to be changing. For one, they’re making more purchases online via computers, smartphones and other devices, suggesting they are visiting traditional stores and using a physical card less frequently. These card-not-present (CNP) transactions now represent 40 percent of credit spending on Visa for consumers aged 60 to 69, which is only slightly lower than the overall average CNP of 40.3 percent.
Cards are used for varied purchases
Boomers are also buying different types of goods, requiring merchants and retailers to adapt as well. Fast food, a category where older consumers have traditionally held a small share of spending, is experiencing an increase in growth among boomers. Grocery, home goods and services (ranging from health care and insurance to taxis) are among the strongest categories.
The bottom line is, consumer spending is holding up despite slowing population and labor force growth, and baby boomers are the ones who deserve most of the credit.
References
- ¹Based on the period from 2015 to 2020.
- Bureau of Labor Statistics (BLS), Consumer Expenditure Survey 2015; BLS Current Population Survey, Census Bureau, New York Federal Reserve, TransUnion LLC.
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Surprisingly, though, the facts tell a different story. According to the Bureau of Labor Statistics (BLS), those under 25 spend an average of about $1,250 a year on entertainment.
Those aged 25 to 34, on the other hand, spend over $2,200, while those aged 35 to 44 spend almost $3,000.
And it's not just entertainment. BLS data also tells us that 25- to 34-year-olds spend roughly $6,200 a year on food, while 35- to 44-year-olds spend $7,900.
Housing expenditures also climb from $17,200 among 25- to 34-year-olds to $20,600 for 35- to 44-year-olds. Meanwhile, 25- to 34-year-olds spend an average of $2,200 a year on healthcare, while 35- to 44-year-olds spend about $1,000 more.
What all of this tells us is that spending doesn't tend to decrease as we get older. Rather, as we go from 30 to 40, we should be prepared to spend even more. Here are a few reasons why.
According to BLS data, most expenses increase between the ages of 30 and 40, but so does income. While average income for 25- to 34-year-olds hovers around $59,000, that number jumps to $78,000 for the 35- to 44-year-old set.
Meanwhile, total annual expenditures average $48,000 for 25- to 34-year-olds, but they climb to almost $59,000 for 35- to 44-year-olds.
It stands to reason that the more money we have, the more we're able to spend. Think about it: You may not be able to afford a $400-a-month car payment on a $40,000 salary, but if your income goes up to $50,000, there's suddenly more room in your budget to swing it.
Of course, this isn't to say you should spend more money just because your earnings have gone up.
Quite the contrary -- you should use your increase in earnings as an opportunity to save. Most Americans, however, aren't wired to think this way, which explains why almost two-thirds of us don't even have $1,000 in the bank.
Having children is by no means a given. But if you do have kids, you're likely to find that as they get older, they tend to drain more of your financial resources.
Or, to put it another way, if you thought the diapering stage was expensive, get ready for the middle-school phase, where extracurriculars, summer camps, and voracious child appetites band together to rob you of every last dollar you earn.
While it's true that infants and toddlers are expensive in their own right, as kids grow, they tend to get more demanding, at which point many parents have a hard time saying no.
Remember how excited you were to buy that cute little starter home at age 30? Ten years later, you're suddenly looking at replacing the roof, refacing the worn cabinets, and repairing the garage door that no longer opens.
Just as health problems tend to develop with age, so too do homes tend to require more maintenance as time goes by -- and that maintenance can cost you.
It's also conceivable that as you hit your 40s, your family might outgrow a smaller home and require a larger one, which also equates to spending more.
The fact that 35- to 44-year-olds spend over $10,000 more each year on average than their decade-younger counterparts tells us one thing: We can't automatically plan on spending less as we get older. If anything, we should plan on spending more.
However, if you're able to anticipate your expenses increasing over time, you can take steps to prioritize saving while keeping spending to a minimum.
You can start by pledging to consistently live below your means so when your earnings increase, so too can your savings.
Another smart move? Get into the habit of paying yourself every month before you spend a dime.
You can set up an automatic savings plan so that money from each paycheck filters automatically into a savings or retirement account.
The latter is particularly advantageous because it generally means reaping some up-front tax benefits as well.
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Finally, always make sure to have some emergency savings on hand. No matter your age, you never know when you might get hurt, fall ill, or lose your job, and the only way to keep up with life's unavoidable expenses is to be financially prepared.
CNNMoney (New York) First published July 23, 2016: 9:30 AM ET