Consumption – the amount spent by households on goods and services from week to week – is a key focus for those interested in living standards. That’s true in general terms because a body of evidence suggests that, for either theoretical or empirical reasons, expenditure is a more direct way of capturing people’s standard of living than the disposable income measures that are more commonly used. But it is perhaps especially true from a generational perspective because the perception in some quarters is that, while generational progress has stalled for today’s young people in income or earnings terms, near-term living standards are being maintained by the focusing of limited resources on meeting current wants rather than investing for the longer term. Consumption opportunities for younger generations are also likely to be heightened by technological progress and a more connected world.
This report, the tenth for the Intergenerational Commission, has been prepared by the Centre for Research in Social Policy at Loughborough University, in collaboration with the Resolution Foundation, to dig further into this issue. It builds on previous evidence presented to the Intergenerational Commission which has shown that in incomes and earnings terms, young people today are failing to improve on the experiences of predecessors. For example, those millennials who’ve so far turned 30 have slightly lower real incomes than generation X before them when they were that age. This report considers whether these trends in generational incomes are mirrored in expenditure patterns or whether the young have in some way “spent” their way to higher living standards. We also explore how those patterns have been underpinned by the changing composition of the basket of goods and services that households consume over five decades.
This analysis uses data from the UK’s main expenditure surveys over the past half century, focusing on the years 1963, 1989, 2000-01 and 2014. Alongside providing a broad, long-term perspective, the research places particular emphasis on the changes that have occurred between the final two time periods.
This survey data is the only option for exploring what different types of households spend their money on, but it presents challenges because of apparent growth in the under-recording of expenditure during the 1990s and early 2000s in comparison to National Accounts aggregates. For this reason, absolute changes since 1989 are interpreted with a high degree of caution – instead we focus on the relative differences between groups in the pace of consumption expenditure changes at different points in time.
In line with household income trends, consumption expenditure grew strongly during the 1960s, 1970s and 1980s. For adults age 25-64, mean equivalised real household consumption expenditure (including rents and mortgages) almost doubled between 1963 and 1989, from £162 to £293 (expressed in terms of the equivalent spending of a single-adult household). It is more difficult to interpret overall trends in the survey data since then, but it is clear from National Accounts aggregates that household spending per person has performed just as badly as – if not worse than – household incomes have in the post-2007 period. So the story of the 21st Century so far is one of stalling consumption expenditure growth sitting alongside stalling income improvements.
A particularly prominent shift over the past 25 years has been the growing role of housing in working-age household expenditure. Rent and mortgages made up 12 per cent of spending for 25-64 year old adults in 1989, rising to 17 per cent by 2014. Whether by choice or as a result of circumstance, households have allocated increasing shares of their overall spending to housing – effectively “crowding out” other forms of expenditure.
Setting aside housing, over the past half century 25-64 year old households have spent progressively less, as a share of expenditure, on meeting their basic need for food, clothes and warmth. The proportion of all spending allocated to food, clothing and domestic fuel declined from almost half (47 per cent) of total non-housing spending in 1963 to just over one-fifth (22 per cent) in 2014. In this period spending has instead shifted towards leisure, communications and transport. The other striking change over the past half century has been the decline in the share of spending allocated to alcohol and tobacco, which made up 12 per cent of non-housing expenditure in 1963 but only 3 per cent by 2014.
Considering working-age adults of different ages, the most prominent shift during the 1960s, 1970s and 1980s was that young adults moved from having quite similar consumption expenditure (including housing) to other working-age adults in 1963, to spending noticeably more by 1989.
In 1963, 25-34 year olds spent 3 per cent less than 55-64 year olds on average, but by 1989 they were spending 11 per cent more. However, not all of this relative decline in the spending of older working-age adults should be seen as a bad outcome from their perspective – some was driven by a welcome reduction in their spending on housing.
In contrast, the change in spending including housing by 55-64 year olds in the 21st Century has outperformed that of those aged under 50. In 2000-01, 25-34 year olds were spending 13 per cent more than 55-64 year olds, but in 2014 they spent marginally (1 per cent) less.
In this more recent period, it’s clear that housing spending has put greater pressure on the expenditure of younger working-age adults than older ones over the past 14 years. The consumption of housing (that is, the amount spent on housing on average after accounting for changes in its cost) increased by £8 per week for both 25-34 and 40-49 year olds between 2000-01 and 2014, and by £5 for 55-64 year olds. This trend is mirrored when focusing on lower-income adults within each age group.
The result is that young adults’ consumption expenditure on items other than housing has been pegged back even further than the shift in total expenditures. In 2000-01, 25-34 year olds and 55-64 year olds had the same amount of non-housing spending; but by 2014, 25-34 year olds had expenditure on non-housing items 15 per cent lower than that of 55-64 year olds.
Taking these relative shifts by age together, we can see that members of the baby boomer generation born in the two decades after the second world war experienced faster-than-average non-housing expenditure growth on their predecessors both when young adults and when older.
In 1989, when baby boomers constituted roughly the younger half of the population aged 25-64, it was the younger groups who were doing best compared to their predecessors. For example, 25-34 year olds’ non-housing spending compared to the same age group in the 1960s grew by 12 percentage points more than the average for all adults aged 25-64. Conversely, by 2014 when these boomers comprised roughly the older half of the 25-64 population, it was those aged 55-64 who spent most compared to their predecessors at the same age: non-housing spending had improved 11 percentage points faster for these older adults since 2000 than for 25-64 year olds on average.
In contrast, older millennials have so far underperformed. Spending among 25-34 year olds grew at a rate 5 percentage points slower than the average for all working-age adults between 2000 and 2014.
From this perspective then, members of the baby boomer generation can be seen as relative winners from the last half century of expenditure changes.
One area where no differences between age groups are apparent is in the shifts in expenditure across broad spending categories over time, which have been very similar indeed at different ages. On this basis it appears highly unlikely that a particular generation has been consistently on the losing side of price trends (and as a result it is unnecessary to seek to deflate generational income or earnings trends by group-specific inflation rates).
Rather than providing a comprehensive account of how lifestyle changes have combined with prices and incomes to determine changes in living standards across all areas of consumption expenditure, our analysis takes a selective look within five spending categories:
In other words, there is little support for the idea that “avocado toast” consumption in cafes (and other things eaten outside the home) is something the millennials are particularly engaging in at the expense of more long-term or purposeful spending (or saving). If anyone is eating more avocado toast it is older working-age adults.
This suggests that far from there being an iPhone generation, modern communications items have come to be regarded as essentials for the broad majority of working-age adults today.
Changes in leisure services like sports clubs and cinema visits – from which consumption has ebbed overall likely in response to fast-rising prices – are more varied by age. For example, all age groups gamble less than they did 14 years ago, but the decline in television and video services and sports and social clubs has been greatest for the young.
The biggest age gradient, however, is in the changing consumption of holidays: older working-age adults consume most and have experienced the strongest growth between 2000-01 and 2014. Once again the pop narrative – in this case that millennials are jet setting more than predecessors – is not represented in the facts.
Overall, our findings across these five examples suggest that consumption differences are often greater by income than by age, and that wider price-related, social and technological shifts generally pervade across age groups. In addition, there is little evidence to support the characterisation of millennials as frivolous spenders – by spending excessively on things such as eating out, communications technologies and holidays – compared to other age groups today or to their predecessors at the same age. Indeed, in many of the areas often seen as luxuries that the millennials in particular enjoy, from holidays to avocado toast, it is baby boomers who have actually experienced the fastest increases in consumption compared to their predecessors.
Some of the trends we have observed in this analysis reflect the image of millennials as a group which is organising consumption in new ways compared to its predecessors. However, to a large extent these shifts reflect changes in society that have affected all groups of working-age adults. Some changes can be seen as “adaptive”, deploying limited resources more strategically, such as not considering a large number of household goods or the purchase of a car to be essential and the prioritising of “experiences” such as eating out. However, young adults’ relatively poor performance in overall expenditure and the squeeze on items such as leisure make inescapable the conclusion that a focus on consumption expenditure in no way undermines the story told by incomes: namely, that generational living standards progress is faltering.