As the Wealth Gap Widens, Banks May Have to Pick Between Two Different Consumer Populations

When Stock Portfolios Matter More Than Paychecks

The most significant development in September’s data isn’t what happened. It’s why it happened. Higher-income spending growth is increasingly decoupled from wage growth alone, driven instead by wealth effects that magnify market gains into consumption increases. Bank of America’s analysis reveals a striking correlation: the difference in discretionary spending growth between the top 5% of households and middle-income peers has closely tracked S&P 500 performance since 2020. When equity markets rise, affluent consumer spending accelerates not just because people feel wealthier, but because they are wealthier by amounts that often exceed their annual salary increases.

Example: A household in the top 20% holding $1.6 million in equities and mutual funds experienced roughly $208,000 in portfolio gains from the 15% year-over-year market appreciation through Q3 2025. Even if only a small fraction of those gains translates to increased spending through the wealth effect — typically estimated at 3-5 cents per dollar of wealth increase — that’s $6,000 to $10,000 in additional annual consumption. For many high earners, that portfolio gain exceeds their nominal wage increase, making asset appreciation a more important driver of spending capacity than employment income.

This wealth concentration has profound implications for retail banking strategy. Traditional deposit acquisition focused on capturing direct deposits and building transactional relationships. But when your affluent customers derive significant spending power from investment portfolios, the real relationship battle occurs in wealth management, trust services, and investment advisory. Banks that treat high-net-worth retail customers primarily as checking account holders rather than investors requiring comprehensive financial planning will lose wallet share to competitors who recognize the new reality. The data suggests discretionary spending among the top 5% moves with the S&P 500 — meaning the institution managing their investment portfolio increasingly influences their spending patterns and product needs.

Housing wealth plays a supporting but more limited role. Home equity is less concentrated than financial assets, with the top 20% holding average equity of $770,000 compared to $220,000 for the next quintile — substantial but not the 10-times differential seen in stock holdings. More importantly, house price appreciation has been modest recently, limiting current wealth effects. The more promising channel is home equity lines of credit, where utilization has risen modestly as the Federal Reserve cuts rates.

However, even significant HELOC growth will have muted macroeconomic impact given total balances represent just 2.0% of consumer spending. For banks, this suggests opportunity in targeted HELOC marketing to homeowners with low mortgage rates who won’t refinance but may tap equity for large purchases or debt consolidation as borrowing costs decline.

Dig deeper:

The Lower-Income Squeeze Intensifies, and It’s Not Temporary

While affluent households ride equity market gains to spending growth, lower-income consumers face a different and deteriorating reality according to the BofA report. September brought a small uptick in lower-income wage growth to 1.4% year-over-year, but context reveals this as false comfort. That rate represents less than half the 2.5% average since January 2024 and a fraction of the 4.0% growth higher-income households enjoy. More concerning, lower-income wage deceleration has persisted throughout 2025 across most generations, with Millennials and Gen X particularly affected. These aren’t workers between jobs or temporarily sidelined — they’re employed households watching their real purchasing power erode as nominal wage gains fail to keep pace with inflation and fall well short of the income growth occurring higher up the distribution.

This matters because lower-income households lack the asset cushion that buffers consumption for their wealthier peers. When wages slow, spending must slow proportionally — there’s no investment portfolio generating gains to offset income weakness, no substantial home equity to tap through credit lines, no diversified wealth enabling consumption smoothing. Bank of America’s data shows spending among lower-income Gen Z households holding up better than other cohorts, likely because they’re earlier in careers with stronger wage trajectories. But Millennials and Gen X in the lowest income tercile face a particularly difficult situation: they’re in prime earning and family formation years but experiencing cooling wage growth without accumulated assets to bridge the gap.