Consumer optimism about household finances has fallen, according to data from TransUnion, a global information and insights company, released as part of its Q4 2024 UK Consumer Pulse report.

The latest survey data finds that just 44% of consumers are optimistic about their household finances in the next 12 months, dropping by two percentage points from the previous quarter. This bucks the trend of rising optimism since Q4 2023.

Financial pressures are affecting consumer attitudes to spending

James O’Donnell, Director of Research & Consulting at TransUnion in the UK, comments: “As household price inflation climbs back up to 3.2%, in conjunction with higher winter energy prices and a slowing jobs market, many consumers are feeling the squeeze and responding accordingly with their wallets. It’s not surprising that we’re seeing attitudes, credit behaviours and spending diverge between generations and income groups. It’s therefore crucial that businesses and financial institutions understand and adapt to the evolving financial landscape."

With inflation and cost-of-living pressures, not surprisingly, consumer spend intentions reflected those financial pressures with nearly half (43%) of respondents planning to decrease discretionary spending, including dining out, travel and entertainment, in the next 3 months.

The report found that price pressures are having a deeply uneven impact across generational lines. Two in five (40%) Gen Z consumers expect they will be unable to pay their current bills and loans in full, compared to 10% of Baby Boomers. Meanwhile, more than one in 10 (16%) Millennials said they increased their usage of available credit in the last three months to meet shortfalls in their finances.

Increasing housing costs are further driving the generational divide

The generational divide in financial health is partly driven by the increasing housing costs. While 57% of Millennials rank rent or mortgage as one of their top concerns, only 24% of Baby Boomers feel the same.

Despite these prevailing housing and price pressures, the Consumer Pulse Report shows that consumer optimism is somewhat skewed toward the younger generations. Twice as many Gen Z (68%) consumers are optimistic about the future of their household finances in the next 12 months compared to Gen X (33%).

This optimism divide may be driven by divergence in income growth; 51% of Gen Z and 36% of Millennials said their incomes are keeping up with the rate of inflation, compared to only 20% of Gen X. Gen Z was also the only generation that said they plan to increase discretionary spend more than they plan to decrease it over the next three months. Meanwhile, more than one in 10 (16%) Millennials have increased their usage of available credit in the last three months to meet shortfalls in their finances.