Inflation may be a burden on the wallets of businesses and consumers alike, but “funflation” already sounds like a much more whimsical prospect.
Key Takeaways:
The term “funflation” was brought up in a recent report by Bank of America. In this context, it refers to the rising price of fun, such as hobbies, outdoor recreation, arts and crafts, and more.
To start, the Bank of America report noted that hobby spending is on the rise. As of August, hobby spending has grown 7.9% year-over-year. Crucially, the report clarified that this is over double the rate of transaction growth.
This is where the term “funflation” is coming in. If hobby spending were matching the pace of transaction growth, it could be attributed to inflation or other consumer behaviors. However, the rate at which folks are investing in their hobbies suggests something more interesting is at play here.
The Generation Gap
Furthermore, the Bank of America report highlighted some interesting trends across different generations. On a per customer basis, older millennials are the generation that currently spends the most on hobbies. Following closely behind older millennials are baby boomers and Gen X, respectively.
Notably, younger millennials spend much less than older millennials, Gen X, and baby boomers on hobbies, according to Bank of America. Lastly, Gen Z currently spends the least on hobbies per customer.
The report noted that it’s actually quite interesting that older millennials are spending the most on hobbies of any generation. This is because, on a statistical basis, this is the age group that has the least amount of leisure time. However, this mystery is actually quite easily solved.
Broadly speaking, older millennials are among those most likely to have young children right now. As such, they are engaging in hobby spending both for themselves and for their children.
Leisure time data can also help explain why older generations have plenty of time to engage in hobbies. According to US Census Bureau data cited in the report, baby boomers have the most amount of leisure time of any generation.
What's Going on With Gen Z?
Gen Z’s hobby spending slowdown is probably worth taking a closer look at. Last year, in August 2025, this generation saw hobby transaction growth increase by 16% year-over-year. Now, in August 2026, that growth is close to 0% year-over-year.
However, Bank of America had some straightforward explainers for why transaction growth suddenly plummeted. Outdoor recreation spending dropped for Gen Z, but items like hiking boots don’t need to necessarily be bought on an annual basis. Furthermore, the generation did see increases in spending at arts and crafts retailers and hobby shops, indicating that this may be where their interests are heading.
Of course, some may be wondering: Why is everyone spending so much on hobbies all of a sudden? Bank of America attributed this to a growing desire for less expensive leisure activities, especially amid inflation. Plus, with fuel costs as high as they are, travel remains a pricey prospect.
The Case for Consumer Discretionary
This report and the rise of “funflation” could bode well for the consumer discretionary sector. As people continue to seek out hobbies as a way to unwind without breaking the bank, retailers could be positioned well to benefit from rising demand. This may prove to be especially beneficial, given that many have shied away from retail due to the threat of inflation.
Advisors and investors who may be considering focused exposure to the consumer discretionary sector have plenty of options available through the ETF wrapper. For instance, one could use the State Street Consumer Discretionary Select Sector SPDR ETF (XLY). This fund from State Street invests in the consumer discretionary stocks within the S&P 500.
The Vanguard Consumer Discretionary ETF (VCR) may also provide a compelling use case. VCR tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index, and while it invests primarily in large-caps, it also holds some exposure to small- and midcaps as well.
Regardless of whether one chooses XLY, VCR, or a different fund altogether, consumer discretionary strategies could be poised to tap into steady growth as consumers spend more on hobbies. And given that the holiday season is fast approaching as well, the term “funflation” may not be going away any time soon.
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