Young Professionals Lead Consumer Spending Shifts While Middle-Income Households Face Pressure
Two new reports from Bank of America, considered in tandem, underline that bank marketers who think about their customers as crude generational brackets – Gen Z and Millennials, in this case – may be missing important nuances (and opportunities) as these cohorts move to center stage economically.
By David Evans, Chief Content Officer
The reports: Are Young Professionals Spending More? and Middle-Income, Millennial, and Thrifty
Source: Bank of America Institute
Why we choose these reports: As the behaviors and preferences of Millennials and Gen Z come to dominate economic activity, understanding the similarities and divergences between and within these two cohorts will become ever more critical for banks and financial institutions.
Executive Summary
Two recent reports from Bank of America reveal a notable transformation in consumer spending patterns, with higher-income younger professionals showing increased economic optimism and spending growth. However, this positive trend masks significant challenges for middle-income consumers, who are increasingly trading down to value options across multiple spending categories.
The data shows a clear generational divide, with Millennials and Gen Z demonstrating the most dramatic shifts in spending behavior despite strong wage growth, likely due to rising costs of major life expenses like housing and childcare. These trends suggest retail banks need to tailor their approaches for different demographic segments while preparing for continued evolution in consumer behavior.
Key Takeaways
- Higher-income spending growth accelerated in 2024, reaching 0.9% year-over-year in October, driven primarily by younger generations who showed renewed optimism and received salary increases
- Middle-income households are trading down most aggressively across spending categories, as their wage growth has lagged inflation by six percentage points relative to 2019
- Despite strong wage growth, Millennials show the largest shift toward value-oriented spending, likely due to increasing financial obligations and rising costs of housing, cars, and childcare
- Consumer sentiment remains 25% below 2019 levels despite recent improvements, creating a paradox where spending continues while confidence lags
What we liked about these reports: Both do a good job of blending data and insights from multiple sources, including both BofA’s proprietary consumer data and other public sources. The conclusion that behavioral distinctions between consumers at different income levels within generational groups are more important than sweeping generalizations about each generation is compelling and actionable.
What we didn’t: Nothing.
Higher-Income Younger Consumers Are Driving Spending Growth
The retail banking sector is witnessing a significant shift in consumer behavior, particularly among higher-income younger professionals. Bank of America’s aggregated credit and debit card data shows accelerated spending growth among higher-income households in 2024, accompanied by strengthening after-tax wage growth. These trends are particularly pronounced among Millennials and Gen Z consumers, who have seen both improved economic sentiment and substantial salary increases.
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Generational Paradox in Spending Patterns
Perhaps the most intriguing trend is the apparent paradox in younger generations’ spending behavior. Despite experiencing wage growth that outpaces inflation, Millennials and Gen Z show the strongest tendency to trade down across spending categories. This behavior likely reflects the impact of major life expenses such as housing, vehicles, and childcare, which are consuming an increasing share of their income despite strong wage growth.
What are the emerging consumer behavior patterns?
The data reveals several important patterns that signal broader changes in consumer behavior.
First, there’s a clear divergence between sentiment and spending patterns. While consumer sentiment remains 25% below 2019 levels, actual spending continues to show forward momentum. This disconnect suggests that consumers are adapting their spending strategies rather than simply reducing overall expenditure.
Travel spending patterns provide particularly interesting insights into changing consumer priorities. Unlike other categories where trading down is prevalent, the number of customers moving to value travel options actually declined by 1% year-over-year. This suggests that consumers may be choosing to forgo travel entirely rather than opt for budget alternatives, indicating a more dramatic shift in discretionary spending decisions.
The relationship between wage growth and spending patterns reveals complex dynamics across different demographic groups. The data indicates that younger generations face unique challenges in balancing rising incomes against growing financial commitments. While Gen Z and Millennial wages have outpaced inflation since Fall 2019, with some cohorts seeing wage growth of over 200% compared to 2019 levels, their spending patterns reflect increasing caution and value-seeking behavior. This suggests that traditional assumptions about the relationship between income growth and spending patterns may need to be reevaluated, particularly for younger consumers managing multiple financial obligations.
Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.
