K-shaped spending: The top 10% drop nearly as much on nonessentials as the bottom 70% combined

K-shaped spending: The top 10% drop nearly as much on nonessentials as the bottom 70% combined Emma Ockerman Updated Thu, July 9, 2026 at 4:01 PM GMT+2 3 min read Households in the top 10% income bracket drop nearly as much money on discretionary items — the stuff that doesn't include necessities like housing and healthcare — as the bottom 70% combined, according to experts at the Bank of America Institute. "That matters because these categories are among the clearest indicators of the health of consumer spending," Liz Everett Krisberg, head of the Bank of America Institute, and David Michael Tinsley, senior economist at the Bank of America Institute, wrote in a brief note this week. The experts examined spending data by income from 2023, but the K-shaped trend — in which a minority of wealthy households are thriving while everyone else falls behind — persists in 2026.

The widening between high-income Americans and everyone else has been noted in the housing market and credit scores , for example. On the spending front, in 2023, the top 10% of pretax earners accounted for 36. 2% of average annual expenditures on discretionary goods and services, the Bank of America Institute said.

That helps richer households, who devote far more of their spending to the discretionary category than their lower-income counterparts, drive demand for nice-to-have items. (Bank of America also reported earlier this year that luxury spending was trending up, with the strongest growth seen among the wealthy. )  Meanwhile, consumers who earn little tend to spend what they do have on essentials, like groceries and gas, leaving them vulnerable to inflation in those categories.

The bottom 10% of earners accounted for just 2. 1% of discretionary spending in 2023. A customer shops at a Grocery Outlet store in Pleasanton, Calif.

(AP Photo/Terry Chea, File) · AP Photo/Terry Chea "As long as affluent consumers keep opening their wallets, inflation could stay stubbornly sticky, according to BofA Global Research," Krisberg and Tinsley added. Indeed, their comments follow two Bank of America Global Research reports that show wealthier consumers have supported healthy spending despite the tough job market and rising prices that have weighed on lower- and middle-income households. Read more:  Find the best credit cards for buying gas "The K is not just about differences in spending growth rates, but also about differences in spending basket, with lower-income households increasingly constrained by necessities, while higher-income households retain the capacity to drive discretionary demand," Bank of America economists, led by Shruti Mishra, said in a June 29 report titled "K, so what?

Implications of a K-shaped economy. " While the gaps between spending and wage growth across income types have narrowed more recently, high-income households have seen the biggest gains in both areas, Bank of America experts said in another report. Overall, total credit card spending that month saw its strongest annual growth in almost four years, at 5.

1%. Story Continues Much has been made in the past year about the K-shaped economy: Stock market gains, which largely benefit the well-to-do, have helped fuel spending, while lower-income consumers have been hit harder by inflation. But because so much of the good vibes among the affluent are driven by stock movements, their spending is vulnerable in the event of a correction.

"In our view, it typically takes a sustained equity drawdown of 20% or more to generate a material negative wealth effect on spending," Bank of America economists wrote in the June 29 report. "Indeed, since the start of the Iran war, higher-income … consumer spending [minus gasoline] in the [Bank of America card] data has held up, in large part due to the equity market holding up. And this has sustained as recently as late-June, even after the tax refund buffer is behind us.

" Emma Ockerman is a reporter covering the economy and labor for Yahoo Finance. You can reach her at emma. ockerman@yahooinc.

com.