A world divided: The rich keep spending, as poorer Americans struggle

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Rich Americans are reaping the rewards of soaring prices for stocks and houses. Lower-income Americans are falling behind on their credit card bills, being pinched by high rents and interest rates and not seeing their pay rise as quickly as it did a couple of years ago.

The economic strains experienced by low-income households help explain negative sentiment about the economy — and President Biden’s weakness in major polls.

The dynamic is also capturing the attention of Federal Reserve officials, who see it as a risk to the overall economy.

At the Fed’s last policy meeting, officials raised concerns that finances of low- and moderate-income households were strained — a “downside risk to the outlook for consumption,” according to meeting minutes released Wednesday.

Many Fed officials “pointed to increased usage of credit cards and buy-now-pay-later services, as well as increased delinquency rates for some types of consumer loans.”

In contrast, some Fed officials noted that wealthier households — responsible for a considerable share of aggregate spending — faced more favorable conditions, “with hefty wealth gains resulting from recent equity and house price increases.”

Delinquency rates started plummeting in 2020 and ultimately hit record lows, reflecting various pandemic-era stimulus measures supporting consumers that helped pay down debt.

Now that has reversed, with delinquencies for auto and credit cards soaring past pre-pandemic rates.

About 6.9% of credit card balances were seriously delinquent — at least 90 days past due — at the end of the last quarter, according to the New York Fed. That’s up sharply from 4.6% the same period a year ago.

“An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households,” Joelle Scally, a researcher at the New York Fed, said in a release last week.

The New York Fed also found that new credit card delinquencies were “disproportionately ascribable” to maxed-out borrowers, the share of which are approaching pre-pandemic rates.

Many Americans say their household expenses are outpacing earnings this year