Millennials, Gen Z Splurging More Than Boomers

Millennials and Gen Z Americans are spending far more than Baby Boomers even as inflation remains high, a new McKinsey report found.

Despite inflation staying steady at around 3.7 percent, consumer spending was on an uptick during the summer.

Ultimately, American customers are seeing a slight decline in inflation, which is likely driving the increased spending.

But younger generations were more likely to spend more of their money. Gen Z and Millennials across all income groups had the highest intent to splurge, at 55 percent and 54 percent, McKinsey said.

At the top of all groups were high-income Millennials, who rated their intent to splurge as greatest.

There were differences in what Baby Boomers, Millennials and Gen Z wanted to spend their money on, however. Roughly 40 percent of Gen Z and Millennials reported an intent to splurge on restaurants, while 45 percent of Boomers wanted to spend their money on travel, more than any other category for that age group.

Your income level also had a significant impact on what you were looking to spend money on.

Among low-income respondents, food for the home was the most popular spending category at 42 percent, while high-income respondents said their most popular splurge category was dining out at 42 percent as well.

Consumer Optimism

Consumer optimism went slightly down during the third quarter after spring highs, McKinsey found. One-third of Americans said they were optimistic about the economy, but 44 percent had mixed feelings.

When looking at specific generations' views, Baby Boomers were the most likely to be optimistic (28 percent up from 21 percent in April). Meanwhile, Millennials were the least likely to have high hopes—just 39 percent were optimistic compared to 55 percent in April.

Not all retail sectors saw the same uptick in spending, however.

At the top, out-of-home entertainment and cosmetic stores reflected a 12 percent and 13 percent increase, McKinsey reported. Travel was also surging, with an 11 percent increase year over year.

Spending Trends Across The Ages

As generations of people who grew up during different time periods, Gen Z and Millennials tend to have far different viewpoints around money than their Baby Boomer elders.

In 2018, the Urban Institute Millennial found homeownership rates were 8 percent lower than the homeownership rates of Gen X and Baby Boomers when they were the same age.

Millennials and Gen Z also tend to spend a greater percentage of their income on housing costs. The same is true for food costs, with Baby Boomers spending only 12.5 percent while Millennials fork out 13.4 percent.

Millennials are also more likely to spend more on apparel and personal care, according to Smart Asset. The combination of increased spending on housing, food and personal care is likely in part responsible for younger populations spending more as inflation cools.

Across all generations, very few are saving as much money as is recommended under the 50/30/20 budget plan. Both Millennials and Baby Boomers save less than 10 percent of their post-tax income.

But in a marked difference from their elders, Millennials and Gen Z are facing an overall reduction in purchasing power, a study from Consumer Affairs shows.

The typical American income in today's dollars back in 1970 would be just $24,600 per year, but the generation of yesteryear also dealt with a much lower average consumer price index of 38.8, compared to 307, which is what the Bureau of Labor Statistics shows for August 2023, the most recent data published.

While wages increased to $44,200 in 2020 (adjusted for inflation), the uptick has not been enough to keep up with inflation costs today, and Gen Z has 86 percent less buying power than Baby Boomers did at the same age.