The K-Shaped Economy: Who’s Feeling the Squeeze?
The economy is sending some conflicting signals.
Stock markets remain strong, corporate profits are elevated, and unemployment remains relatively low. Yet many families don’t feel particularly confident about their finances.
If the economy is doing well, why does everyday life still feel so expensive?
The answer may lie in what economists call a K-shaped economy, one where households can have very different financial experiences at the same time.
Two Different Experiences
Households that own stocks, real estate, and other appreciating assets have benefited from rising values. Higher-income households also continue to drive consumer spending. In fact, the top 10% of earners accounted for nearly half of U.S. consumer spending in the second quarter of 2025.*
For many younger families, renters, and those still building savings, the experience may look quite different.
Income may be higher, but so are many of the expenses that matter most: housing, health care, child care, insurance, and groceries. A raise doesn’t provide much breathing room when those costs are rising right along with it.
Spending Doesn’t Always Mean Strength
Strong consumer spending can also be misleading.
Strong consumer spending can give the impression that households are doing well financially. But spending more doesn’t always mean families have more discretionary income. In many cases, it simply reflects the higher cost of everyday life.
When more of a paycheck goes toward housing, groceries, insurance, health care, and child care, spending may remain strong while financial flexibility declines.
That’s an important distinction. What we spend tells us only part of the story. What’s left after the bills are paid often tells us much more.
Focus on Your Economy
For investors, strong markets have helped build wealth. But your investment portfolio is only one part of your financial life.
This is a good reminder to look at the whole picture. Has your emergency reserve kept pace with higher monthly expenses? Are rising family costs affecting how much you can save? Do you have enough liquidity while continuing to invest toward your long-term goals?
It's also worth considering whether your financial priorities have shifted as the cost of living has increased. Higher expenses may mean adjusting savings targets, reassessing retirement income needs, or revisiting how much investment risk you can comfortably take. For those approaching retirement, even modest increases in ongoing expenses can have a meaningful impact on how long their savings will last. Periodically revisiting your cash reserves, spending, savings, and investment strategy can help keep your financial plan aligned with changing economic conditions and personal circumstances.
National statistics tell us how the economy is doing. Your financial plan should tell you how your economy is doing. And ultimately, that’s the one that matters most.
*Marte, J. (2025, September 16). Top 10% of earners drive a growing share of U.S. consumer spending. Bloomberg. https://www.bloomberg.com/news/articles/2025-09-16/top-10-of-earners-drive-a-growing-share-of-us-consumer-spending
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