Where's our money going? How different generations spend money

We’re taught that money matters from a young age. Whether it’s saving it for a rainy day, earning it through household chores or learning that parents don’t have an endless supply of it, these childhood lessons shape our spending and saving habits throughout the rest of our lives. What we spend the majority of our money on varies from age to age and even generation to generation, but according to the Bureau of Labor Statistics (BLS)’ 2017 Consumer Expenditure Survey, there are a handful of areas everyone’s money is funneled towards regardless of age, and plenty of places costs can be cut.

Housing

This category, which includes both owned and rented dwellings, in addition to furniture, appliances, and cellular phone service, accounts for the bulk of most people’s budgets, no matter what age. The Greatest Generation (born in 1927 or earlier) allocates 48.3 percent of their annual spending to housing, while it accounts for 35.7 percent, 33.4 percent, 32.7 percent, and 31.5 percent annual spending for Millennials (born 1981 or later), the Silent Generation (born 1928-1945), Gen Xers (born 1965-1980) and Baby Boomers (born 1946-1964), respectively.

These findings are particularly telling for both millennials and members of the Greatest Generation.

"Millions of millennials are financially strapped, and their spending reflects their struggle," said Cheryl Russell a demographer and editorial director at New Strategist Press, in Reid Wilson’s March 29, 2018 article, “Hold the avocado toast? Millennials spend more on rent, less on entertainment, research shows.” "Despite the fact that millennials are better educated, their earnings are lower than the earnings of boomers and Gen Xers at the same age and they are less likely to have a job with health insurance or retirement benefits."

This hinders millennials when it comes to affording and purchasing a home, and with high house prices, increased student loan debt, and a high cost of living, the BLS found that millennials spend more on rent (13.2 percent of their annual income) than almost all other generations, with $6,754 a year going toward that expense.

The only age group that spends more on both owned houses and rent than millennials is the Greatest Generation, born before 1928, “likely because much of that money goes to nursing homes and assisted living facilities,” wrote Wilson, a reporter for The Hill.com.

With housing taking up about one-third of everyone’s budgets, it’s a tougher place to cut costs and may involve more sacrifice, wrote reporter Taylor Tepper in her March 28, 2018 article, “How different generations spend their money.”

“You can try to refinance or lower your maintenance costs, to chip away at the big price tag,” Tepper wrote. “But you need to make some real sacrifices, whether location or size, to lower your overhead.”

Transportation

Whether purchasing and maintaining their own vehicle or utilizing other forms of transportation (think buses, subways, taxis, or ride services like Uber or Lyft), getting around is the second largest cost for every generation in the Consumer Expenditure Survey apart from the Silent Generation. Millennials shell out nearly 17 percent of their annual total income (or about $8,500) on transportation, while Baby Boomers spend 16 percent (nearly $9,800 a year), Generation X devotes 15 percent (a little more than $10,500 a year) and the Silent Generation spends 14 percent ($6,000) annually.

While owning a vehicle means you can get to and from the grocery store, doctor’s office and work on your own schedule, walking, biking or using public transportation can help cut your transportation costs while also benefiting your health.

According to a November 2016 Transit Savings Report, published by the American Public Transportation Association (APTA) and referenced in a Nov. 29, 2016 CleanTechnica.com article, “$9,641 = Annual Savings Taking Public Transportation in the USA,” “individuals who ride public transportation instead of driving can save, on average, more than $803 per month.” In Chicago, those savings were higher than average, with public transportation patrons saving $955 monthly and just under $11,500 annually, according to the APTA.

Carpooling is another transportation option that can help trim gas, parking and car maintenance, and car insurance costs, especially if it allows you to cut down to just one vehicle for your family. A March 16, 2019 Edulers.com article “What is Carpooling?” estimated that a family using a single car could save 30 to 40 percent each month, on average. Carpooling can also benefit your mental health and the environment.

Food

The Bureau of Labor Statistics reports that each of the five generations surveyed commits about one-eighth of their spending to food (both food at home and eating out), with Millennials and Generation X tending to eat out more often.

“Millennials ($6,300 in food spending) and Generation X ($8,900) both spend slightly less than half of their food budget on dining outside the home,” wrote reporter Taylor Tepper in a March 28, 2018 article, “How different generations spend their money,” adding that Baby Boomers and members of the Silent Generation “spend only two-out-of-every-five dollars on eating out.”

This finding mirrors a 2017 Charles Schwab Modern Wealth Index, which compares and contrasts how Millennials, Generation Xers, and Baby Boomers spend money. The report found that Millennials were anywhere from 9 percent to 25 percent more likely to spend money on luxuries and conveniences, like clothing, taxis, concerts, expensive coffee, or eating out, than the other two generations.

Town and Country Bank Assistant Vice President and Branch Manager Patty Mills echoes those statistics.

“Younger people are not as frugal as people in their 30s or 40s,” said Mills via email. “They do not have as many responsibilities and live in the moment. … (They) focus on having a good time, going out to concerts and bars with friends, eating out, and video games.”

“Entertainment, eating out, discretionary spending is something that the younger generation spends more of their income on,” agrees Town and Country branch manager Joy Boyer. “They may not be married, have children or even own a home yet, therefore spending on those types of things is a little more common.”

When it comes to cutting back or trying to save money, food and entertainment are often where people begin. Meal planning, making a grocery list and sticking to it to minimize food waste, brown-bagging your lunch and skipping drive-thru meals can mean more money in your pocket or for savings. Other money-saving ideas are growing your own vegetables, utilizing grocery delivery or drive-up services, using coupons, and only buying certain items when they are on sale, according to the article “15 Ways to Save on Groceries” on Dave Ramsey.com.

Retirement/Financial Planning

Many Americans struggle to put money away for emergencies or a rainy day, but the BLS reports that working-age Americans, including millennials, Gen-Xers, and Baby Boomers, are making an effort to save when it comes to their post-work lives, committing roughly 12 percent of their annual income to Social Security and pensions.

While millennials are often criticized for spending more of their money on luxury items and conveniences, they also believe in the importance of a solid financial future. More than 33 percent of them have a financial plan, compared to 21% of Generation X’ers and 18% of Baby Boomers, according to a March 27, 2019 article, “How Millennial Spending Habits Compare to Other Generations.”

“Millennials are also more likely to create their financial plan with the help of a financial advisor and update it annually,” reported Rachel Morgan Cautero, a reporter for The Balance.com, in that same article. “They are also more likely to monitor their financial accounts and are generally more knowledgeable regarding fees.”

When it comes to creating a retirement nest egg, financial professionals recommend utilizing any employer match and maximizing it, determining the pros and cons of a Roth 401k or IRA versus a traditional retirement account, calculating your retirement goals and how much you need to set aside annually to meet them, and playing it safe when it comes to investments, according to a January 20, 2019 Balance.com article “How Much Should I Put in my 401K?”

Where to start?

Establishing a budget or retirement plan can seem intimidating, but it’s vital to your current and future financial well-being, say both Mills and Boyer.

“(A common problem is that) customers who have a budget do not follow it, or others without a budget never really know what their balance is in their checking account,” explains Mills.

Relying on emergency funds or overdraft protection can be problematic as well.

“Unfortunately, a lot of people live paycheck-to-paycheck … and they utilize their overdraft protection as a savings plan,” Boyer says. “It’s meant for a one-off or emergency protection and not an extra source of funds. That’s when we really have to have the hard conversation with people about their spending habits.”

If you’re feeling overwhelmed or unsure where to begin, your local bank can help.

“(At Town and Country), we have several tools we can use to help people,” says Boyer. “If they are wanting to put more money in savings, we recommend auto transfers from payroll or setting up direct transfers on a recurring basis. We also discuss areas they could perhaps cut back on; we use budgeting tools to help them see a clear picture; (and we) discuss making extra payments each month on debt, etc. to pay down things faster.”

Additionally, trust officers are willing and able to help you with retirement planning.

For more information on budgeting or retirement planning, visit townandcountrybank.com or call 1-866-787-3100.