The American economy has been resilient, the job market is healthy, and consumers continue to spend, but more and more Americans are becoming financially overwhelmed – especially with their credit cards.
New data released Tuesday (14) by the Federal Reserve Bank of New York showed that as household debt balances grew during the first quarter of this year, delinquency also increased. Notably, the percentage of delinquent credit card balances (90 days or more overdue) reached its highest level since 2012.
The aggregate delinquency rates rose during the first quarter to 3.2% of outstanding debt, the highest level since the fourth quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit from the Fed of New York. Transitions to delinquency – especially severe delinquency – increased across all types of debt, according to the report.
Delinquency fell to historic lows during the pandemic as consumers spent less during the health lockdown and managed to accumulate savings and pay off debts with those funds and economic stimulus payments. However, as supply chain imbalances and spending fueled domestic and global inflation — and subsequently an increase in interest rates — debts and non-payment of them have risen in recent years.
Household debt grew by 1.1% during the first quarter, to $17.69 trillion, according to unadjusted inflation data. The quarterly increase was largely driven by mortgage balances.
5 Basic Needs That the Middle Class is Struggling to Afford in 2024
• Housing
In the last decade, rent inflation has outpaced currency inflation by 40.7%, according to Doorloop. From 2023 to 2024, average rent prices increased by double-digit percentages in many U.S. states.
With many Americans paying more than one-third of their income for housing, a growing number of middle-class families are being excluded from the homeowner group.
• Child Care
With most parents spending $18,000 or more annually on child care, a 2023 report from Care.com found that for 67% of parents, this amounts to 20% or more of their household income (up from 51% the previous year).
However, according to the U.S. Department of Health and Human Services (HHS), child care should not cost families more than 7% of their household income to be considered affordable. For a family earning $100,000 a year, this means that annual child care costs would have to decrease by more than 61% to meet this criterion.
• Transportation
Transportation has become the second-largest household expense, second only to housing, with American families spending an average of 16% of their total income in this category.
Additionally, data from Experian suggests that supply shortages during the pandemic caused new vehicle prices to rise, peaking in April 2023 with a 19% increase compared to 2021. Fortunately, as new vehicle inventory has recovered, used vehicle prices have fallen by 13% from their historical peak in January 2022 – but still remain 34% above pre-pandemic prices in 2019.
The increase in interest rates for both used and new cars also represents a significant financial burden for many buyers.
• Health Care and Medications
More than 450 prescription medications recorded price increases in January 2024, following the trend of rising overall health care costs. According to data from the Consumer Price Index from the Bureau of Labor Statistics, the cost of medical care (which includes services, insurance, medical equipment, and medications) increased by 114.3% from 2020 to 2023, surpassing inflation for all other consumer goods and services by more than 33%.
• Food
In 2024, annual food inflation was just over 2%. However, this comes after many years of massive inflation in food products (3.9% in 2020, 6.3% in 2021, 10.4% in 2022, and 2.7% in 2023). Many middle-class Americans are being forced to further tighten their budgets to afford this essential commodity.
Sources: CNN and Yahoo! Finance