A new wave is emerging among consumers. In the past, young people were often labeled the “YOLO” generation, “You Only Live Once,” embracing a live-for-the-moment attitude. Now, they’ve evolved to “YONO”—”You Only Need One”—representing a mindset of careful budgeting and avoiding unnecessary purchases.
Young people need to live within their means, saving here and cutting back there, which is understandable. What’s unusual, however, is that many wealthy people, despite having significant wealth, are also reluctant to spend.
Let’s take a more macro view.
A May article in The Economist discusses this trend, suggesting that the wealthiest generation may actually be the most frugal. The article, titled “Rich but Stingy: Why Baby Boomers Are Reluctant to Spend,” explores this paradox.
“Baby Boomers” is a term from the United States, referring to those born between 1946 and 1964—a generation that may number as high as 78 million. They grew up in a time of rapid economic growth, and while not everyone in this cohort is rich, they’ve accumulated considerable wealth as a whole. In the U.S., baby boomers represent 20% of the population but hold 52% of the nation’s net wealth. Globally, this could translate to around 270 million people with similar characteristics.
Today, this generation is reaching retirement age. According to expectations, now should be the time when boomers unleash their purchasing power.
In economics, there’s a concept called the “life cycle hypothesis,” which describes how spending changes with age. Young people typically earn little but spend a lot, resulting in low or even negative savings, often taking on debt for education or housing. Middle age brings higher income and savings as people start preparing for retirement. In old age, expenses are expected to once again outpace income, with savings as the primary source of support.
Based on this theory, many researchers anticipated that baby boomers would enter a big-spending era. Economists even predicted that as they spend, a wave of savings would be released, potentially driving up interest rates and inflation.
However, reality suggests otherwise; retirees are spending their funds at a much slower rate than expected.
For example, in many countries, baby boomers don’t indulge in extravagant spending after retirement but continue to save. A Federal Reserve survey in 2022 found that 51% of American retired households planned to keep saving—5 percentage points higher than thirty years ago. In the UK, retirees’ share of overall market spending is shrinking, and Italian economists have observed that 40% of retirees still save after retirement. Japanese researchers found that elderly people there only spend 1-3% of their net assets annually, with many leaving considerable wealth at the time of their passing. Retiree saving rates are also rising in South Korea, Germany, Canada, and Australia.
Similarly, financial markets reflect this trend. Financial data company MSCI created an index tracking companies targeting older consumers, like senior healthcare, leisure, travel services, supplements, and anti-aging skincare. However, over the past five years, this index has underperformed the general market by one percentage point per year. Investors conclude that baby boomers are a frugal generation rather than a lavish-spending one.
In summary, The Economist concludes that this is the wealthiest retired generation in history, yet also the most frugal. The article proposes three main reasons for this reluctance to spend.
First, the pandemic has changed certain habits, subtly reducing consumption. Many retirees have become accustomed to staying in, eating out less, and traveling less. A U.S. restaurant chain noted that spending by customers over 65 remains below 2019 levels. Thus, retirees are unconsciously spending less.
Second, this generation often prefers to pass down their wealth rather than spend it themselves. Research indicates that inheritance is a major reason for reduced spending among European retirees. In the U.S., the average inheritance per capita has risen by 50% since the 1980s and 1990s, while in Ireland, it has doubled.
The third reason is the risk of living longer. With life expectancy significantly extended, people spend more cautiously. Baby boomers could very well live to 100, meaning retirement might span a third of their lives. Everyone hopes to have enough money to last through retirement, so as this period lengthens, setting aside more money for the future becomes the prudent choice.
This trend is both common and understandable. Practicing thriftiness for the next generation or a secure retirement is virtuous. However, there is also a type of stinginess or thriftiness that doesn’t come from genuine intent. For these people, spending money is painful even though they have plenty.
You might call them “constrained consumers”—wealthy but find it hard to spend, even on small purchases. This group avoids spending out of an anxiety about the act itself, even when there is no real financial pressure. Their fear of spending runs deep, even though they face no actual financial threats.
In September, The Atlantic published an article examining this phenomenon. For instance, one person with substantial wealth and an annual income in the hundreds of thousands resolved to buy a $60,000 new car but ended up purchasing a $30,000 used car instead. Another example is a finance influencer, clearly not short of cash, who deliberated for a year over whether to buy a bicycle but still couldn’t make up his mind.
Why do some wealthy people fear spending money, feeling distress even when they do? Isn’t this self-inflicted suffering? This anxiety likely has psychological roots. The Atlantic identifies a few factors.
First, these individuals may compartmentalize their “mental accounts” too rigidly. People tend to divide money into different “accounts” for various purposes. But if these mental accounts become too fixed, one may become overly focused on the perceived loss from a specific account. “Constrained” consumers struggle to utilize their wealth effectively because they “lock” money into specific “purpose-bound” accounts, feeling anxious over any deviation. Essentially, they have an imaginary piggy bank in their mind, and this piggy bank’s money simply must not be spent.
Second, these people tend to overestimate opportunity costs, leading to decision paralysis. For example, the finance influencer agonized for a year over a bicycle purchase, comparing it to other possible uses for the money, like a new iPhone or S&P 500 fund shares. The problem arises when every choice seems accompanied by unpredictable opportunity costs, amplifying the fear of loss to the point of inaction. To avoid this anxiety, they end up making as few spending decisions as possible.
The final factor is a fear of uncertainty. Scott Rick, a marketing professor at the University of Michigan, studies this “fear of spending” phenomenon. He suggests that people who avoid spending often had impoverished childhoods or faced financial crises as adults, leading them to fear falling back into poverty.
American writer Damon Young coined “PBSD,” or Post-Bankruptcy Stress Disorder, modeled after PTSD, to describe how some people continue to feel extreme anxiety even after escaping poverty and attaining wealth. For example, Young said he sometimes feels panicked when hearing a truck outside, fearing it’s there to repossess his car, even though he has no debt.
In conclusion, The Atlantic believes that this paradox—having money but fearing to spend it—is largely a psychological issue. For these people, various factors fuel anxiety over their financial situation, yet the solution isn’t simply to earn more. In fact, more income may even intensify their anxiety.
Of course, this kind of anxiety may not be universal. However, it highlights an important issue: money and happiness are not always directly correlated.
This idea has been explored in research before. In 2010, psychologist Daniel Kahneman published a study showing that while happiness initially increases with income, this effect plateaus. According to his study, the effect of income on happiness weakens once annual income reaches between $60,000 and $90,000. At that point, doubling one’s income provides about the same boost to happiness as enjoying a good weekend, yet even a simple headache can negate that increase entirely.
Therefore, the key factor we may need to focus on isn’t the absolute amount of money, but rather one’s sense of control over it.
This control includes feeling in command of one’s income. As Kahneman’s research suggests, when are people most satisfied with their earnings? It’s when all their basic needs are met and there is no fear of credit card debt—they achieve the highest satisfaction level.
This sense of control also extends to spending. How can we ease the discomfort of spending? The best way is by setting a budget. For those who tend to overspend, a budget helps control expenses, which is straightforward enough. But even for those reluctant or anxious about spending, a budget can alleviate some of that internal worry.
Scott Rick from the University of Michigan discussed this approach on a podcast. He suggested setting aside a monthly budget specifically for unplanned expenses. This way, if you come across something you’re very interested in but feel hesitant to purchase, you can use this “exception budget.” Also, when creating your budget, avoid listing specific items—instead, focus on things you truly value. For instance, if family is a priority, allocate a budget for them. Then, when deciding to buy a car, the reason might be that it allows you to visit your parents each week, making family gatherings more convenient. This rationale can help you feel at peace with the expense.
In the end, a person’s sense of contentment doesn’t come from an absolute amount of money, but from whether their mindset aligns with their income.
Finally, may you find joy in every purchase you make. That wraps up our discussion on this topic.
