A lockdown lift and increasing vaccination rate have put the US on the verge of an economic boom, but Americans need to spend to help such a recovery take off. Wealthy millennials may be the ones leading the way.
A new report by McKinsey & Company found discretionary spending is already on the rise again, and more than than half of US consumers anticipate spending extra by splurging or treating themselves. Higher-income millennials are planning to spend the most.
It makes sense considering that millennials are America’s largest generation and hold the most spending power, and that the wealthy have recovered the best in America’s K-shaped recession. Being wealthy and a millennial puts one in a prime position to spend, especially considering that some of this cohort had saved up to $3,000 a month during lockdown last year.
One sector where affluent millennials plan to spend is travel. A new survey from Accenture and TripAdvisor found that high-earning millennials are most likely to spend big on travel this year, comprising the highest rate of luxury bookings (trips costing at least $5,000) among all other generations surveyed.
It’s up to the wealthy to help boost the economy
It’s up to high earners to help propel the economy forward.
Consumer spending accounts for 70% of the American economy, and half of that is from the top 10% of American households, per estimates from Goldman Sachs and Deutsche Bank, respectively. That means about one-third of US GDP comes from spending by the top 10%.
Higher-income households are “key to driving the recovery in consumption,” as UBS strategist Keith Parker wrote in a March note. Those earning over $80,000 annually expect to increase their spending more than low- and middle-income earners, per a follow-up UBS note.
Americans are currently sitting on $2.6 trillion in excess savings, per data from Moody’s Analytics. Nearly two-thirds of the excess savings in the US sits with households in the top 10% of the income distribution, and three-quarters by those in the richest 20%.
But this unequal share of savings built up during the pandemic would limit an even bigger boom in spending, Mark Zandi, chief economist at Moody’s Analytics, said in a note. “Much of the excess saving has been by high-income, high-net-worth households who are likely to treat the saving more like wealth than income, and will thus spend much less of it, at least quickly,” he wrote.
Wealthy millennials’ intent to spend is a good sign, then. It’s needed to fill the hole the pandemic left in the economy.
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