Majority of millennials, Gen Zers willing to go into debt to treat themselves post-pandemic

Americans rediscovered frugality during the pandemic — more by default than by choice. Widespread business shutdowns, particularly those of restaurants, bars, and personal care services like salons, meant that consumers had fewer places where they could spend money. Entertainment options, from movie theaters to live sports, went offline. International travel was curtailed, and remote workers had the time and space to make their own coffee and lunch.

As a result, the personal savings rate — the amount of discretionary income people put away for rainy days — skyrocketed, and overall credit card debt fell significantly.

Throw in the extra money most people received from the federal government across three rounds of stimulus checks, and Americans, by and large, found themselves on a stronger financial footing than they were before the pandemic.

Now, with a significant amount of the population vaccinated and Covid restrictions falling away, Americans are ready to spend, according to a new survey from CreditCards.com.

In many cases, consumers will be spending enough to put them in the red: More than half of millennials and Gen Zers say they plan to take on debt for discretionary purchases in the second half of 2021. (Less than a third of baby boomers said the same.)

It's not that surprising that pent-up demand is unleashing now that more things are open, says Ted Rossman, senior industry analyst at Bankrate. What does surprise him, however, is how quickly the pendulum has swung from extreme saving to extreme spending.

"It really feels like most people have more money in the bank, and that's why I'm surprised that so many people are planning to go into debt for these things," Rossman says.

Regardless of whether it incurs debt, spending is going to remain remain high for the rest of the year. Two-thirds of all Americans say they plan to spend more money in at least one discretionary category during the second half of 2021, according to the CreditCards.com survey, and the most recent inflation data from the Bureau of Labor Statistics backs that up.

Consumer prices rose 5% in May 2021 compared to the year before — the highest such spike in more than 13 years. Price increases were significantly higher in particular sectors, like used cars, which saw an almost 30% increase for the year.

That data is somewhat skewed, thanks to its comparison to the depressed retail numbers of spring 2020, when consumer demand plummeted during the first wave of pandemic-related shutdowns. As a result, the current increase back to more normal pricing looks more severe than it actually is.

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However, even when factoring in last year's pandemic dips, the current wave of demand has pushed prices higher.

"Spending on goods remains really strong, and that's a surprise," Rossman says. "I thought we would have seen more of a shift from goods to services at this point."

For the time being, people are as willing to treat themselves to a home renovation project or some new clothes as they are to dinner at a restaurant. About a quarter of respondents said they were planning to splurge on at least one of these categories later this year, according to the CreditCards.com survey. An even higher amount, 35%, said they would splurge on travel.

It shouldn't be a surprise that people want to spend on services like entertainment and dining, given that so much of that was shut down during the pandemic, Rossman says. What is surprising is that goods-based categories, like electronics and home improvement, "are holding their own." Early figures from this spring showed that Americans were buying lots of jeans, shoes, swimsuits, and even Champagne.

"I kind of thought those trends were a little bit played out at this point," Rossman says. "Last year, so many people bought so much of this stuff."

While we may be letting out a collective sigh of relief now that pandemic restrictions are ending, financial experts warn we shouldn't let our guards down.

It's still important to save for a rainy day, even if the forecast looks as sunny as it does now. Money advisors generally recommend having at least 3 to 6 months' worth of living expenses saved in an emergency account. Don't forget retirement funds, either: Experts suggest you aim to invest at least 15% of your income for your future.

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That said, you can definitely treat yourself. Just be smart about it, and make sure "that we're not just going back to the old habits of running up these credit card balances," Rossman says. "Avoid credit card debt. It's really expensive."

"Everybody's entitled to splurge a little bit. It's been a tough year and you want to get out and do stuff," he adds. "But my hope would be that people could do so more with the money they've saved, or within the constructs of a budget."

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