Older Americans are fueling a sustained boost to the U.S. economy, as they are spending more on higher-priced services like travel, health care, and entertainment. With outsize gains in the stock and housing markets, older Americans are contributing to the growth of consumer spending, which is the principal driver of economic growth. The “wealth effect” has given older Americans confidence to increase their spending, which has defied expectations of a sharp slowdown in the economy. The Federal Reserve is grappling with stickier inflation and has been forced to shift its plans for rate cuts due to brisk consumer spending. Affluent older Americans have seen their wealth increase in recent years, leading to a surge in household net worth and impacting the overall economy.
Household wealth in the United States has grown significantly in recent years, with stock prices and home values soaring. The gains in wealth have been largely concentrated among older Americans, who now own nearly three-quarters of all household wealth. The baby boomer generation, in particular, has accumulated more assets and is driving a rising share of consumer spending. While wealth has increased for younger households as well, the gains have not been sufficient to keep pace with older Americans. The economy is benefitting from the wealth of older Americans, who are the richest retiring generation ever, according to experts.
Despite the overall increase in household wealth, many older Americans still face significant financial challenges, with one-quarter of Americans over age 50 having no retirement savings. The economy has become bifurcated by age, with wealthier older Americans less affected by the Federal Reserve’s rate hikes, while younger Americans struggle with expensive home prices and high mortgage rates. The divide is evident in housing markets, with older Americans like Joan Harris seeing significant appreciation in their homes, while younger adults find it difficult to afford housing in desirable areas. The rising share of consumer spending by older Americans is impacting the overall economy and inflation levels.
Research indicates that the wealth effect is playing a significant role in driving spending on discretionary items like travel, entertainment, and dining out. Retirement-age Americans are more likely to spend out of their wealth, and with the growing proportion of the population over age 65, the impact of the wealth effect on spending has increased. Older Americans, who are more aware of their stock holdings and net worth through online platforms, are contributing to the surge in spending on services. Demand for overseas vacations and cruises is at a record high, with companies like Royal Caribbean reporting strong earnings and customer sentiment. The Federal Reserve is closely monitoring inflation, which remains elevated due to solid consumer spending, particularly on services.
The unexpected strength of consumer spending, driven in part by affluent older Americans, has led to a shift in the Federal Reserve’s plans for rate cuts. The Fed’s higher rates have impacted borrowing costs across the economy, but the wealth gains of older households have offset some of these effects. The economy continues to benefit from the spending of older Americans, who are enjoying the fruits of their accumulated wealth. However, the divide between older and younger Americans in terms of wealth and spending power highlights the challenges facing different age groups in the current economic environment. As the Federal Reserve grapples with inflation and economic growth, the role of older Americans in driving consumer spending and overall economic activity remains crucial.
