Credit card debt peaks in US as millennials struggle to pay it off
The Americans are accelerating their credit card.
Credit card debt hit a record high after balances rose $46 billion from the third quarter of 2019 to $930 billion in the fourth quarter, surpassing their previous level.
Rising is a double-edged sword, Hayashi wrote: Rising spending signals a strong economy, but people are struggling to pay for their shopping habits.
Credit card serious delinquency rates, defined as payments made at least 90 days after the due date, fell from 5.16% to 5.32% over the same period – the highest in nearly eight years, according to the Fed. Serious crime rates are even higher among 18 to 29 year olds, surpassing the 2010 high of 8.91% to 9.36%. A chart breaking down Fed data shows that a higher percentage of overall credit card debt is held by people aged 50 and over.
This could explain why more than half (67%) of millennials in credit card debt interviewed in a 2019 Insider and Morning consultation experience a little or a lot of stress about their credit card debt.
Rising cost of living outpaces millennial wage growth
Serious delinquency rates may reflect the financial realities millennials face, particularly that of a rising cost of living that outpaces their income growth.
Multiple studies show that millennials have less purchasing power than previous generations at the same age. A Student Loan Hero 2018 Report found that rents, house prices, and tuition fees have all risen faster than incomes in the United States. The latter is a particularly heavy weight — 62% of adults aged 18 to 29 bachelor’s degree holders deal with student debt.
It doesn’t help that people aged 25 to 34 on average have seen revenue increases by only $29 since 1974 after adjusting for inflation, according to a recent SuperMoney report who analyzed data from the US Census Bureau. That year, they earned an average of $35,426, compared to just $35,455 in 2017.
This is far less than the growth in inflation-adjusted income for other age groups over the same period – $2,900 for adults aged 35 to 44 and nearly $5,400 for those aged 45 to 54 years old.
When most of a minimal income is spent on rising housing and education costs, it’s easy to put living expenses on a credit card and hard to pay it off, which ends up create an endless cycle of credit card debt.
However, Wilbert van der Klaauw, senior vice president of the New York Fed, said he was unsure whether the rise in credit card delinquency rates was due to certain cohorts of the population are not doing well or because lending standards have eased, Hayashi reported. The Fed is “looking into it,” he said.