According to the Federal Reserve Bank of New York's Survey of Consumer Expectations, an increasing number of Americans believe they are at risk of falling behind on their debts. In September, people expressed a higher expectation of missing minimum debt payments compared to previous months, reaching the highest level since May 2020. On average, survey respondents estimated a 12.5% chance of being unable to meet the required minimum payment on their various debts, such as credit cards, auto loans, student loans, and mortgages. This figure rose by 1.4 percentage points from the previous month.
Notably, two specific groups experienced the most significant surge in concerns about their debts in September: individuals under the age of 40 with some college education and those with an annual household income below $50,000. This increase in expectation of missed debt payments highlights a growing impact of inflation and higher interest rates on people's financial situations, particularly individuals with lower incomes and credit scores, as pointed out by Ted Rossman, senior industry analyst at Bankrate.com.
The start of student loan repayments in September after a three-year pause adds an additional burden for those who pursued "some college education." Rossman emphasizes that this group may be particularly vulnerable because they have accumulated student debt without obtaining a degree that could potentially lead to higher wages and better job prospects.
Moreover, American consumers have experienced challenges in obtaining loans from banks and lenders. Compared to a year ago, borrowing has become more difficult, with an expectation for even tighter credit conditions in the future, as indicated by the survey.
These findings illustrate the growing financial strain on individuals and households across the United States. As debt repayment concerns increase, it becomes crucial for policymakers and institutions to address these issues and develop strategies to support those at risk of falling behind on their payments.
Americans Remain Cautiously Optimistic about the Economy
The New York Fed recently conducted a survey, polling 1,300 households on a weekly basis throughout September. The survey aimed to gain insights into Americans' perceptions of the overall economy, personal finances, job market, and cost of living.
According to the survey, Americans' expectation of household spending growth remained steady in September, with no change from the previous month at 5.3%.
While the survey revealed that Americans anticipate continued inflation in the short and medium term, fewer individuals believe inflation will remain high in the long term. In August, inflation experienced a slight uptick, with consumer goods and services seeing a 3.7% price increase compared to the previous year, as reported by the Bureau of Labor Statistics. The September inflation data is expected to be released on Wednesday.
Interestingly, Americans' credit card debt has soared to a record high, surpassing $1 trillion during the first and second quarters of 2023, as per New York Fed data. As a result of the Federal Reserve's efforts to curb inflation, borrowing has become more costly. According to LendingTree, the average annual percentage rate for credit cards currently sits at 24.45%, the highest it has been since 2019 when the online lending marketplace began tracking this data.
Although credit-card delinquency rates have risen since the onset of the pandemic, they have remained artificially low in recent years due to government stimulus payments and reduced spending.
In summary, Americans' cautious optimism persists despite uncertainties surrounding inflation and personal finances. With inflation expectations remaining uncertain and credit card debt at an all-time high, individuals are keeping a watchful eye on economic developments.