From Wall Street to Wallets: The Tale of Two Consumers

In this episode of the IBKR Podcast, host Jeff Praissman sits down with NASDAQ’s Michael Normyle to unpack the widening wealth gap and its impact on consumer behavior. From stock market-driven confidence to the financial strain on lower-income households, we explore how inflation, wage growth, and spending trends are shaping today’s K-shaped economy.

Summary – IBKR Podcasts Ep. 324

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman 

Hi everyone, this is Jeff Praissman with the Interactive Brokers Podcast. It’s my pleasure to welcome back NASDAQ’s Michael Normyle for our monthly discussion on the economy. Hey Michael, how are you? 

Michael Normyle 

Doing well, thanks. Glad to be back. 

Jeff Praissman 

Thanks for stopping by. I always enjoy these monthly talks on the economy. Today, we’re revisiting a topic we first discussed back in July 2024 in Episode 170: Rich Man Spends, Poor Man Can’t Save. We’re not going to cover the entire topic again, but we’ll revisit some key points. That episode focused on what we called the “K-shaped consumer”: high-income households doing well due to faster wage growth, stock market gains, and home appreciation, while lower-income households struggled, spending a larger share of their wages on goods and services. So Michael, how have the economic experiences of lower-income households changed over the past 15 months since our previous podcast? How do these shifts compare to wealthier families? 

Michael Normyle 

Fifteen months ago, we talked about how lower-income households were starting to struggle because they had run through their COVID-era savings during the high-inflation period of 2022 and 2023. Then, real income growth slowed as the labor market cooled, and income growth became their main source of spending power. Since then, those trends have mostly continued—if not worsened. Wage growth has slowed further, just as inflation has picked up again. The Atlanta Fed shows 3.6% nominal wage growth for the bottom 25% of Americans, while CPI inflation is now at 3%. That means just 0.6% real wage growth, and it could get squeezed further as inflation is expected to rise slightly in the coming months. For higher-income households, 15 months ago we noted their continued strength. They have money to save, so they’ve benefited from the Fed’s higher rates and a strong stock market. The top 20% of households own 87% of U.S. stocks, and that dynamic remains in place. Stock and home prices are near record highs, creating a wealth effect that supports spending. The top 20% of households account for about 40% of U.S. spending. 

Jeff Praissman 

So wealthier households are clearly on a different track than poorer households. How has income growth changed between these groups over that time? 

Michael Normyle 

There’s a big difference in wage growth. For the bottom 25%, wage growth has slowed steadily—from 7.5% in late 2022 to 3.6% in August 2025. For the top 25%, wage growth peaked later and at a lower level—5.7% in mid-2023—then fell to 4.7% by spring 2024. But instead of continuing to decline like the lower end, it’s mostly moved sideways for the past year and a half and still stands at 4.6%. So higher-income wage growth has stabilized, while lower-income wage growth keeps falling. 

Jeff Praissman 

Rising prices and inflation must hit lower-income households much harder than wealthier ones. How are these households managing daily finances compared to wealthier families? Are they making any headway? 

Michael Normyle 

You’re exactly right—inflation is especially challenging for lower-income households because they have less cushion in both income and wealth. Where inflation occurs also matters. Lower-income households spend a larger share of income on housing, energy, and groceries—all major sources of inflation during the post-COVID spike. Housing inflation has slowed in recent years, but lower-income households still spend more on goods, and this year we’ve seen a revival of goods inflation. Inflation affects higher-income households too, but they have more cushion thanks to stronger wage growth and spending patterns tilted toward services, where inflation has generally slowed over the past year or two. 

Jeff Praissman 

That leads to my next question: how have spending habits and priorities evolved for these groups? It seems like low-income families are just trying to tread water, while wealthier families have a cushion and aren’t as affected day-to-day. Is that fair? 

Michael Normyle 

Yes, that’s fair. One big trend we’ve seen—highlighted during recent earnings seasons—is “trading down,” where consumers opt for store brands or shop at cheaper stores. Spending is focused on essentials rather than discretionary items. For example, in Q3 earnings, McDonald’s CEO noted that visits by low-income households fell again—a trend ongoing for two years. Meanwhile, higher-income households continue discretionary spending. A recent Wall Street Journal article reported that the average daily rate at luxury hotels in the U.S. hit a record $394 per night due to resilient demand from wealthier consumers, while rates at economy hotels have been flat for three years. Research from Apollo also shows the S&P 500 consumer discretionary sector is up about 10% since June, while consumer staples are down about 5%. 

Jeff Praissman 

And to your point too, I know Target just came out with their earnings a few days ago, and they had a pretty bearish outlook as far as holiday spending. It’ll be interesting to see when Walmart comes out in a few days—are they optimistic? Are they getting those prior Target customers? To your point, spending down a little bit and seeing where they’re at. And so now I want to concentrate more on these wealthier households, right? Because the stock market rise, housing appreciation, and so forth really cause a wealth effect, right? So even if people don’t actually have more cash, they see their 401(k)s, they see their savings accounts, they see their individual brokerage accounts, and it looks great, right? So it’s a psychological effect for most people. And it really does. For people with higher net worth, what might happen if all of a sudden consumer behavior differs—if people begin recognizing these paper gains and then the stock market goes down? Do you think these wealthier households will see the effect and dig in a little bit more? 

Michael Normyle 

Yeah, so just to put some numbers on it, there’s research that shows for every $1,000 that a person’s stock portfolio goes up, people might spend about $35 to $50 more than they would have otherwise. So that’s that kind of wealth effect that you’re talking about. And JP Morgan estimated that the wealth effect from the gains in the top 30 AI stocks alone accounted for about 16% of the increase in consumer spending in the past year. So the asset price appreciation gives those consumers that confidence to keep spending—like you’re saying, that psychological impact. But of course, based on that $1,000 estimate, we’re talking about 3.5% to 5% of that paper gain. So it’s not exactly like people are going nuts here. They’re boosting their spending a little bit, but hopefully it should be something that is still within reason. But when you consider that 16% of consumer spending being attributable to stock market gains, then, like you brought up, a swoon could definitely dent spending growth. I don’t think we’d see spending growth going negative, but the pace of growth could slow, certainly. 

Jeff Praissman 

And I am pretty sure I know the answer to this, but I want to ask it for our listeners: Are there notable contrasts in household debt levels and borrowing practices between these two groups? I’m just gonna go flat out and say that most likely the lower-income households are probably taking on some debt that they don’t necessarily want to take on—just out of necessity. 

Michael Normyle 

Yeah, and this is a place where I think we have to make some imperfect assumptions since income levels don’t map perfectly to credit scores, but lower-income workers—they’re more likely to have lower credit scores. And sometimes that’s just because they’re younger; they don’t have as much credit history. Recently, what we’ve seen: subprime auto loan delinquency rates actually rose to their highest since at least 1994—that’s the full history that we have, and it’s the highest in that history. We’ve also seen credit card delinquency rates rise to some of their highest readings since the global financial crisis. So it’s clear that people are definitely struggling to keep up with payments, and this is likely a bigger issue among lower-income households. Then on the flip side, if you look at delinquencies for mortgages, they remain very low. And in part that’s because people refinanced during COVID—they locked in historically low rates. And it’s also partly because after the global financial crisis, lenders boosted their lending standards. So mortgage borrowers were much more creditworthy on average. And then lastly, when households know that they need to miss a payment on a loan, the mortgage is the last resort. 

Jeff Praissman 

And we really touched on this in our last podcast. It was basically the title Rich Man Saves and Poor Man Can’t, but in terms of savings and investment, has anything changed over the past 15 months? Or is it really still that the wealthier households are able to take advantage of being able to save? Have these lower-income households made any headway, or has it actually gotten worse for them as far as being able to put any money away? 

Michael Normyle 

Yeah, it’s definitely been a challenge for lower-income households. There’s research from Deutsche Bank that shows real liquid assets are below pre-COVID levels for the bottom 20% of U.S. households, while for all other—the top 80%—it’s up for all of them. And going back to those top 30 AI stocks that I mentioned earlier, JP Morgan shows that those stocks alone have added $5 trillion to household wealth in the U.S. in the last year. But again, you have to own stocks to gain that wealth. And again, the top 20% of households own 87% of stocks. The good news, though, is that we’ve definitely seen a shift where lower-income people are starting to invest more, so they’re starting to benefit more from stock ownership. So data from JP Morgan Chase Institute shows that as of May 2025, the share of people with below-median incomes transferring funds into investment accounts was about five times higher than the average over 2010 to 2015. Then the monthly investing share for above-median income individuals was up threefold. And lastly, people are investing earlier. So the share of 25-year-olds in 2024 that used investment accounts was 37%, compared to just 6% in 2015—again, looking at 25-year-olds in 2015 versus 25-year-olds in 2024. 

Jeff Praissman 

That actually leads me into my next question almost perfectly too: What role does access to credit and financial services play in shaping the experiences of both these household types? So it sounds like from what you’re just saying that some of these lower-income households are actually starting to invest more and potentially be able to really take advantage of the economic environment if it stays as is. 

Michael Normyle 

Yeah, that’s definitely true. But I think to your initial question, right? Access does matter, and it adds challenges for lower-income households. So for example, since, like we mentioned earlier, higher-income households—they’re more likely to own homes. If they need to make a big purchase, they can take a home equity loan. For people who don’t own homes, that’s not an option, and that means they’re gonna have to rely on credit cards most likely. And those carry much higher interest rates. So right now, a home equity loan—the rate is about 8%. For a credit card, it’s 20% or higher, especially if you have a lower credit score. So it adds the financial burden, both by restricting your credit options and then increasing the interest expense. 

Jeff Praissman 

Yeah, and I would assume utilities and general housing costs take a bigger bite out of lower-income families’ budgets compared to wealthier ones. But in what ways do lower-income and wealthier families experience the effects of economic inequality and the growing wealth gap—since we last talked, or just in general? What other effects are there besides lower-income families really struggling to stay afloat? 

Michael Normyle 

Just to address your housing and utilities question quickly: data from Harvard shows 20 million homeowners—about a quarter of all homeowners—were cost-burdened in 2023. That means they spent more than 30% of income on housing and utilities. For people making less than $30,000, nearly 75% were cost-burdened. So like you’re saying, housing and utility costs are a real problem, especially for people on the lower end of the income spectrum. For homeowners, you’ve seen property taxes rising with home values, plus increases in insurance premiums. For renters, 22 million people were cost-burdened—that’s half of all renters. 

So this is definitely an issue, especially for people on the lower end of the income spectrum. And when you’re talking about the effects of inequality and the wealth gap, it’s definitely a problem—and not just for lower-income households. Research from Jefferies recently showed that the top 1% have more wealth than the middle 20% to 80%. So it’s not just people on the low end. And then for housing, homebuilders aren’t building entry-level homes as much, so it’s harder to become a homeowner because that entry-level price point isn’t there. Even on what we talked about earlier with travel—lower-income households have been reducing travel spending while higher-income households have been boosting it. We did see some progress during COVID, though, with the wealth gap narrowing. That was due to stimulus payments and stronger income growth for lower-wage workers. But those effects are definitely starting to fade again more recently. 

Jeff Praissman 

And looking out to the future, what trends might either make this gap worse or bring them together a little bit—take that “K” and bring those edges in—for the economic experience of both lower-income and wealthier households? 

Michael Normyle 

I think there are a lot of dimensions in which this relationship could change, so I’ll just focus on a couple. A continued asset boom would probably exacerbate the gaps like we’ve seen recently. But as I mentioned earlier, lower-income workers are participating in markets more, so that should help at the margin. 

Rate cuts from the Fed could certainly help—to the extent that they boost the labor market, which then helps wage growth. Plus, if we see inflation cooling off over the next year—which is my personal expectation—that should help real income growth rise as well. 

Jeff Praissman 

Michael, this has been great. Again, appreciate you stopping by the IBKR Studio. And for our listeners who want to get more from Michael, you can find him at nasdaq.com, as well as on our website. Click on Education and you can find many great collaborations with NASDAQ—whether it’s webinars, podcasts, or articles. Until next time, thank you. 

Michael Normyle 

Thanks.