The generation in 'permacrisis' is forced to give up the mortgage, but spending on bars and trips skyrockets

“A prolonged period of instability and insecurity, especially resulting from a series of catastrophic events”. It is the definition of “permacrisis”, the word that the Collins dictionary selected as word of the year in 2022. And in it fits an entire generation that has linked the economic crisis of 2008, the pandemic and, now, an unprecedented inflation shock.

They are young, their life aspirations have been frustrated and they have ended up giving up acquiring a mortgage or starting a family. However, they spend more than they earn and, despite the inflationary context, they do not skimp on the consumption of goods and services that are not essential. What's more, in the last year the increase in spending on bars, restaurants, trips or clothing has practically doubled the rate of the Consumer Price Index (CPI).

This is the main conclusion reached by IESE professor José Luis Nueno in his book 'Everything is terrible, but I'm fine', published by the association of manufacturers and distributors AECOC. “Older citizens are more cautious in their investments, while young people, who are part of this consumer in 'permacrisis', continue to spend on items such as cheap clothes, bars and restaurants, entertainment or low-cost travel,” he explains. .

In data, between the first quarter of 2022 and the first of 2023, inflation rose by 5.5%, while the spending of this generation on dressing up, going out for a drink or dinner and even traveling grew well above. If the categories of consumption are broken down, strikingly high increases are observed in the disbursement of clothing and footwear (10.2%), restaurants (10%), travel and hotels (9%), or flights and vehicle rentals (28.7%). %).

It is paradoxical because, precisely, those are the “frivolous” expenses in which consumers assure that they will save. The author uses various surveys carried out in Germany, France, Italy, the United Kingdom and Spain and draws some interesting conclusions: 62% of the population believe that the economic situation in their country will worsen, while only 40% believe that your particular situation will. In addition, 48% say they will cut back on spending in bars and restaurants, 40% say they will save on clothing and 38% that they will save on leisure. But the reality is that spending skyrockets in all those items.

Nueno understands that an explanation for this behavior of younger consumers “could be their pessimism in the face of the few possibilities of becoming independent, creating their own home or starting families. This consumer profile, as analyzed by the professor, “still does not feel the weight of the most recurring financial charges, such as insurance or mortgages, so they allocate part of their income to affordable pleasures, which are what they can afford.”

This phenomenon affects the polarization of consumption, which implies growth in both the cheapest and luxury categories.. This is confirmed by the most recent reports from AECOC Shopperview, which confirm that, although the economic situation of half of Spanish households has worsened, the consumer does not give up certain items. Specifically, 35% spend the same or more than last year on leisure, entertainment, culture and travel. 16% are buying more premium or gourmet products and 61% continue to go out to bars and restaurants the same or more than in 2022.

household budget

When the distribution of the budget in households is observed, it is extracted that non-discretionary spending (that which is not chosen, such as mortgages or supplies, without taking food into account) accounts for 33% of total spending. With the shopping cart it goes up to 49%. Durable discretionary items, such as furniture, electronics or vehicles, account for 15.6% of the budget and are the main source of cuts in a recession, generating more than 40% of savings.

In the case of services, they account for 27% of spending and 35% of savings when there is a need to generate them.. Meanwhile, non-durable expenses imply 22% of spending and 18.6% of savings. And this savings is where lower consumption in bars and restaurants is included, as well as in clothing, the purchase of promotional items or the search for cheaper stores.

The study takes as a reference a consumer with an average salary of 19,817 euros per year. And he calculates that his spending amounts to 22,598 euros per year. So that difference between income and expenses is paid with savings, with credit (mainly cards) or with the help of the family support network.

And this, in a context in which salaries have increased by 5.4% throughout the five quarters under analysis, but inflation has risen by 5.5% in the same period. In this way, “salary improvements have lagged behind inflation,” he points out, and this leads to almost half the population feeling impoverished.