Financial Advisors Show Concern Over Younger Generation Spending Trends

young women shopping stores

Recent tremors in the financial landscape suggest apprehensions about the persistence of high interest rates, eroding earlier trust in the Federal Reserve’s cushioned transition narrative. Eyes remain fixed on global financial cues, with investors bracing for potential market headwinds.

A fresh CNBC poll with feedback from around 300 financial experts shows a telling pattern: a hefty 64% anticipate the U.S. plunging into a recession by next year’s mid-point or later.

However, juxtaposing this financial caution, American consumers continue their spending spree with little restraint, seemingly nonchalant about impending economic ripples.

Statistics from August spotlight a 5.8% spike in spending from last year, effortlessly overshadowing inflation rates. The travel sector is buzzing, exemplified by Delta Air Lines reporting all-time high revenues for Q2.

Music aficionados are making their presence felt too. Ticketmaster’s nearly 300 million ticket sales for events in the initial half of 2023 mark an impressive 18% annual uptick. Major attractions, like Taylor Swift’s record-breaking Eras tour, merely scratch the surface of this booming entertainment economy.

On the finance front, credit card usage is skyrocketing. Data from the Federal Reserve reveals an approximated $18 billion in credit transactions during May and June alone, translating to a 4% seasonally-adjusted growth in Q2 consumer credit.

With “seize the day” emerging as the prevalent spending mantra, a deeper probe into this consumption pattern might unveil its repercussions on the average American’s financial future and overall well-being.

Millennial Spending Surges Amid Generational Shift

Fueling today’s spending spree isn’t just the peculiarities of our post-pandemic economy; it’s also a handover between the generations. Millennials, by sheer numbers, have edged past the post-war baby boomers. Their purchasing strength now nearly matches, boasting $2.5 trillion against the boomers’ $2.6 trillion.

Notably, these younger groups have a proclivity for investing in experiences such as travel and live events, instead of tangible goods. A 2023 Credit Karma study reveals that these individuals are statistically more inclined to splurge on journeys, even if it’s beyond their means.

There’s also an evolving comfort with debt. A whopping 76% of Gen Z and 83% of millennials have expressed willingness to shoulder debt to sponsor their travel aspirations this year.

Financial mavens observe this significant pivot in the younger generation’s spending perspectives, nudging a reconsideration of standard investment blueprints tailored for them.

Kevin Lao, Founder and Financial Planner at Imagine Financial Security, elaborates on this shift, “Phrases like YOLO, which stands for ‘you only live once’, weren’t really a mantra for baby boomers or even Gen X. Rising costs have hindered the youth from forming families and securing homes… For many, achieving conventional financial milestones feels elusive. So, they’re shifting gears: spending more freely today with a sense that youth is fleeting and that future certainties are sparse.”

This buoyant outlook combined with perhaps a touch of naiveté shapes the younger cohorts’ financial choices.

Jacob Rothman, CPA, CFA, and Wealth Manager at Rothman Investment Management, points out, “A significant chunk of consumers hasn’t really felt a pinch from a recession affecting their spending. The 2020 slump, though severe, was brief and accompanied by ample government aid. For many, the challenge wasn’t finding money to spend, but rather where to spend it.”

The economic scars of 2009 may have faded for many, given the length of time since that recession. A good chunk of today’s consumers either don’t recall the extent of that downturn or were too young to experience its impact.

Social media’s grip on how people spend is undeniable and is felt most acutely by the younger generations. With peer experiences readily available for viewing and comparison, the urge to keep up and partake has intensified.

Garrett Harper, the mind behind Harper Financial Strategies, comments on this trend, “In the age of social media, many are constantly exposed to peers seemingly leading ideal lives, sparking a pronounced FOMO. However, the lingering financial implications of these decisions often go overlooked.”

Shedding light on this, the Credit Karma survey disclosed a revealing trend: a striking 76% of Gen Z and 69% of millennials admit to acquiring debt propelled by FOMO. Some financial experts assert that the remedy lies in better financial education.

Kevin Lao emphasizes the need for a foundational shift, stating, “We must intensify our focus on teaching financial literacy at the secondary and tertiary education stages. Questions like how to amass wealth early on, or strategies to augment one’s income, are vital. These insights pave the way for individuals to strike a balance between enjoying the present and securing the future.”

Affluent Households Navigate Spending Amid Economic Uncertainties

Building wealth through disciplined savings and delayed gratification can pave the way for stronger purchasing power in the future. By prioritizing investments and dodging debt pitfalls, individuals can bolster their financial cushion and allow for more spending elasticity.

Doug Greenberg, helm of Pacific Northwest Advisory, points out, “Households with higher incomes often follow a spend-save model. They can afford luxuries but also have the foresight to build a financial buffer. Aligning spending to one’s financial health is key.”

For the affluent, estate planning tactics can be employed, capitalizing on assets as collateral to augment wealth. Moreover, there exist tailored approaches to finetune tax scenarios for the well-off, maximizing disposable incomes.

Yet, there’s an observable trend among younger Americans — a preference for present joys over future financial security. This cohort, undeterred by looming recession clouds, are reshaping spending norms, opting for life experiences over material ownership.

While living in the moment resonates with many, maintaining a balance is essential. With a keen eye on spending habits and a touch of financial prudence, individuals can enjoy their current desires without jeopardizing their long-term monetary health.

Josh Dudick

Josh is the owner and lead writer at Daily Wisely. His career has taken him from finance to blogging, and now shares his insights with readers of Daily Wisely.

Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh has over 15 years of experience on Wall Street, and currently shares his financial expertise in investing, wealth management, markets, taxes, real estate, and personal finance on his other website, Top Dollar Investor.

Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business.