As living costs rise, older consumers spend more than younger people
A bank survey of customers sheds light on how people of different generations are spending their money.
A spending divide has opened between younger and older generations in response to inflation, cost-of-living increases, and post-COVID recovery.
Under 35s are generally cutting back their expenditure, while older Australians are buying more.
The Commonwealth Bank (CBA) and data science and artificial intelligence company Quantium analysed the spending trends of 7 million bank customers.
The group under the greatest pressure was 25 to 29-year-olds, whose spending was almost unchanged in value over the past 12 months even though prices increased by 7%.
Spending among the over 55s, by contrast, increased at an above-inflation rate over the past year, with CBA customers over the age of 75 boosting their spending by about 13%.
Older people are more likely to own their property without a mortgage and benefit from higher interest rates.
The CBA data also suggest that the strong growth in spending at cafés and restaurants identified in official Australian Bureau of Statistics data has been driven by older cohorts.
The spending information in the report is based on the actual money leaving people’s accounts. Given price rises, most are naturally spending more than a year ago.
But analysts say there is a clear split between those whose spending growth is lagging behind inflation (they might be spending more, but they are actually buying less) and those whose spending growth is more than inflation.
Perversely at a time of cost of living “belt tightening”, discretionary spending is significantly up – on travel, entertainment, and eating out. Retail spending on household goods and clothing is down, especially among younger people.
According to the Australian Financial Review (AFR), the CBA data suggests strong growth in spending at cafés and restaurants has been driven by older consumers, who are spending 18% more on dining out than last year, compared to a 7.1% lift among under-35s.
Overall, spending on travel and accommodation is up 39% over the year.
“Putting our expenditure under the microscope shows we’re responding to the increased cost of living in diverse and sometimes unexpected ways,” says the report’s author, CommBank iQ Head of Innovation and Analytics Wade Tubman.
“What we’re seeing is a continued COVID rebound effect, with consumers catching up on the experiences that they missed out on during the pandemic. It seems counter-intuitive that at a time of increased cost of living pressures, consumers are choosing to boost their discretionary spending.”
Australians aged 25-29 cut back the most, while 18-24 year olds – many of them still living with their parents – continued their spending in real terms. While young people are choosing to go out less, their average spend has increased, probably reflecting cost increases.
The areas of essential spending where purchases have increased in real terms are medical services, up by 12.5%, and public transport, up by 9.4%.
Spending at supermarkets increased by 4.5% over the past year, which was less than inflation and suggests that people have cut back on groceries or shifted to buying cheaper things.
The report also tracks which parts of Australia’s two biggest cities are under the most financial pressure.
In Sydney, it is the outer south-west, alongside the inner-city and eastern suburbs, which have a high number of younger residents and renters.
In Melbourne, it is concentrated in inner Melbourne and outer areas such as Werribee, Melton, and Cranbourne.
