Greenwich Time

Affluent Americans are driving U.S. economy

- By Christophe­r Rugaber

WASHINGTON — Since retiring two years ago, Joan Harris has upped her travel game.

Once or twice a year, she visits her two adult children in different states. She’s planning multiple other trips, including to a science fiction convention in Scotland and a Disney cruise soon after that, along with a trip next year to neolithic sites in Great Britain.

“I really have more money to spend now than when I was working,” said Harris, 64, an engineer who worked 29 years for the federal government and lives in Albuquerqu­e, New Mexico.

Back then, she and her nowex-husband were paying for their children’s college educations and piling money into savings accounts. Now, she’s splurging a bit and, for the first time, is willing to pay for firstclass plane tickets. She plans to fly business class to Scotland and has arranged for a higherleve­l suite on the cruise.

“I suddenly realized, with my dad getting old and my mom dying, it’s like, ‘No, you can’t take it with you,’ ” she said. “I could become incapacita­ted to the point where I couldn’t enjoy something like going to Scotland or going on a cruise. So I better do it, right?”

Older Americans like Harris are fueling a sustained boost to the U.S. economy. Benefiting from outsize gains in the stock and housing markets over the past several years, they are accounting for a larger share of consumer spending — the principal driver of economic growth — than ever before.

And much of their spending is going toward higher-priced services like travel, health care and entertainm­ent, putting further upward pressure on those prices — and on inflation. Such spending is relatively immune to the Federal Reserve’s push to slow growth and tame inflation through higher borrowing rates, because it rarely requires borrowing.

Affluent older Americans, if they own government bonds, may even be benefiting from the Fed’s rate hikes. Those hikes have led to higher bond yields, generating more income for those who own such bonds.

The so-called “wealth effect,” whereby rising home and stock values give people confidence to increase their spending, is a big reason why the economy has defied expectatio­ns of a sharp slowdown. Its unexpected strength, which is contributi­ng to stickier inflation, has forced a shift in the Fed’s plans.

As recently as March, the Fed’s policymake­rs had projected that they would cut their benchmark rate three times this year. Since then, though, inflation measures have remained uncomforta­bly high, partly a consequenc­e of brisk consumer spending.

All told, Americans’ wealth has ballooned from $98 trillion at the end of 2018 to $147 trillion five years later. Adjusting for inflation, the gains are less dramatic, but still substantia­l.

“People have had significan­t wealth gains in stocks, significan­t wealth gains in fixed income, significan­t wealth gains in home prices, significan­t wealth gains even in crypto,” said Torsten Slok, chief economist at the Apollo Group, an asset manager. “All that adds up to still a very significan­t tailwind.”

The gains are hardly universal. The wealthiest one-tenth of Americans own two-thirds of all household wealth. Still, wealth for the median household — the midpoint between the richest and poorest — rose 37% from 2019 to 2022, the sharpest rise on record since the 1980s according to the Fed, to $193,000.

Wealth is also disproport­ionately held by older Americans. People ages 55 and over now own nearly three-quarters of all household wealth, up from 68% in 2010, according to the Fed. In percentage terms since the pandemic, household net worth has also surged for younger households. But because younger adults started from a much lower level, their gains haven’t been anywhere near enough to keep pace with older Americans.

That said, many older Americans face significan­t financial challenges. One-quarter of Americans over age 50 have no retirement savings, according to a survey by AARP.

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