What’s Behind Generational Divides in Financial Optimism and Spending Habits?

TransUnion’s recently published Q3 2022 Consumer Pulse Study provides a snapshot of consumer financial sentiment and outlook. Economic challenges stemming from the pandemic and inflation have evolved since we began tracking more than two years ago. Surprisingly, the new report shows an appreciable variance in consumers’ perspectives across generations. Here are a few key findings and their implications for consumer marketers.

Among generations, younger consumers are more optimistic

For the first time since we began tracking, significantly more consumers had worse than planned household finances — an 11-percentage point increase from Q2. As of mid-August 2022, two in five consumers said they’re facing a worse than planned household financial situation. 

While overall optimism around household finances over the next 12 months decreased by two percentage points to 53%, Gen Z and Millennials remained relatively upbeat with 66% and 65%, respectively, citing optimism compared to Gen X (49%) and Baby Boomers (40%). Fueling this was how households assessed their finances thus far in 2022 relative to their expectations:

• Gen Z: 39% said their finances were better than expected
• Millennials: 41% better 
• Gen X: 24% better 
• Baby Boomers: 13% better

Discretionary spending under pressure

These varying attitudes were reflected in how generational consumers changed discretionary spending (defined as dining out, travel and entertainment) in the last three months. Overall, 53% of consumers cut discretionary spending, an increase of 9 percentage points from Q2 2022. Gen X (59%) led the pack in cost reductions followed by Baby Boomers (54%), Millennials (51%) and Gen Z (45%). Consumers planned to continue this diminished spending behavior over the next three months in a comparable manner.

We can also see this trend across the services segment, which has been a strong sector in recent years. Overall, 26% of consumers cancelled subscriptions/memberships in the past three months; and 19% of consumers did the same for digital services (e.g., wireless, cable TV, Internet). These figures were consistent across generations. 

Interestingly, nearly 20% of Gen Z and Millennials reported adding these services, over double the rate that Gen X and Baby Boomers reported. Given that Gen Z and Millennials have shown higher resilience to inflation-related challenges, our take-away is that these younger generations are choosing to substitute better deals rather than cutting outright.

Gen Z consumers flock to purchase in store

We were surprised to find Gen Zers were the least likely to report using online channels for the majority of their transactions: 

• Gen Z: 29%
• Millennials: 41%
• Gen X: 39%
• Baby Boomers: 35%

We speculate Gen Z consumers value experiences and the ability to authentically engage with brands, and thus were most likely to venture into their communities post-pandemic to conduct in-store shopping. In contrast, we were not surprised Millennials reported the highest use of online channels due to their convenience — especially with young children at home. 

Customer intelligence has never been more important

A challenging economy dictates more discipline in how businesses engage consumers while keeping key generational differences in mind such as the resiliency of younger generations and their likelihood to spend more on discretionary goods and services. Businesses that invest in genuinely understanding their customers will be in the best position to serve these segments with merchandising and marketing programs that focus on financial and experiential value.

TransUnion solutions leverage our deep knowledge of consumer identity to help businesses more efficiently and effectively identify, target and connect with consumers, and measure programs centered around them. We can assist with:

• Marketing: Enrich your understanding of your customers and how to best reach them, enabling targeted advertising and audience syndication across channels, and measure the impact of marketing to optimize approach. Learn more
• Fraud/risk: Minimize decline rates of good customers to maximize short-term transactional revenue and customer lifetime value. Reduce fraudulent transactions that result in chargebacks or erode customer trust. Learn more
• Contact center: Maximize operational efficiencies with accurate and consistent caller ID names to ensure calls aren’t blocked or marked as spam. Improve agent effectiveness by boosting answer rates, conversions, and talk time. Learn more