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As baby boomers have become more circumspect about expenses, it appears that the younger generation is on a spending spree, as suggested by recent studies.

This could be linked to the gap in consumer sentiment between the age groups, especially with their widening divergence in recent years.

Data Source: Surveys of Consumers by the University of Michigan

While baby boomers are reining in expenses, younger consumers are loosening their purse strings. JPMorgan Chase & Co. Institute’s Local Consumer Commerce Index (LCCI), which gauges credit and debit card transactions across 15 U.S. metro cities, indicates a +2.3% consumer spending growth in December 2015, from the same month of the preceding year. In this report, consumers under 25-years-of-age contributed +1 percentage point (ppt.). The total contribution of people under 35-years was around +0.9 ppt., while consumers aged between 35 and 44-years added +0.6 ppt. (their largest year-on-year contribution since January 2015).

On the other hand, consumers over 55-years-old lowered their spending over the same period, the biggest drag being from the 65-years-and-over-group who pulled down total spending growth by -0.5 ppt.

While many young workers earn less than the older population, their wages are not always reflective of their spending habits. JPMorgan data suggests that while the top 20% of income earners depressed growth by -0.4 ppt., the bottom quintile added +1.3 ppt. to spending growth, from December 2014 to December 2015. Even in the somewhat weaker growth month of November, the lowest 20% of earners contributed +0.7 ppt. even as the uppermost quintile subtracted -0.6 ppt.

People below 25-years-of-age shelled out around +16% more in December from a year earlier, even though they comprise just 6.9% of total spending. Also, the bottom quintile earners’ (about 13.8% of consumer spending) increased +10% over the same period.

While rising prices of essentials like car repairs and healthcare pushed up consumer expenses, this did not stop the youth from splurging on restaurants, salons and entertainment. On the other hand, steeper medical costs and economic uncertainties have probably made older/retired consumers thriftier as many living off their fixed retirement earnings.

The divergence between age groups, especially over the back-half of 2015, in trends of confidence metrics such as chances of losing a job and perception about retirement income, also help to explain the differences in spending growth contributions.

Data Source: Surveys of Consumers by the University of Michigan

Compared to their parents and grandparents, American youth has viewed the glass as half-full amid global uncertainty in recent years. Reduced jobless claims, record-low unemployment rate and improving wages this year in the U.S. should further bolster their cheery outlook.

An increasingly sparing older generation could be restricting to the overall U.S. consumption growth, but recent months’ indications of a strengthening domestic economy should augur well for financial asset prices—something that could potentially encourage spending from retirees and/or older Americans by enhancing the value of their nest eggs.

As we look at how consumers, both young and old, are handling consumer spending, this brings to mind a big question on consumers’ minds—how can you effectively plan for retirement? Managing spending is only one step when it comes to saving for retirement. Still, there are other factors to consider as you plan for retirement. Read “4 Steps to Managing Your Retirement Assets” to get an inside look into effective ways to plan for your retirement. Click on the link below to download this guide today:

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