Twenty-nine percent of American households have more credit card debt than emergency savings, a figure that has risen by 6 percent since 2011, according to a new study from Bankrate.com.
“The sharp deterioration in the relationship between credit card debt and emergency savings is an ominous indicator of the financial health of American households,” said Greg McBride, the financial service company’s chief financial analyst. “The strain of high household expenses, lackluster increases in income, and rising interest rates reaches across demographic classifications and impacts Americans from all walks of life.”
The new survey is the latest in a series of studies finding that Americans are less able to save, even as the country recovers from the Great Recession.
Last December, a GoBanking.com survey found that 58 percent of respondents had less than $1,000 in their saving accounts. In October, the Center for Financial Services Innovation found that 72 percent of Americans were either “financially coping” — struggling to pay some of their monthly expenses, or “financially vulnerable” — struggling to pay all or nearly all of them.
None of this bodes well for the U.S. economy. Despite steady growth in employment and wages, more Americans are having trouble making ends meet and borrowing money to fill in the gap. American credit card debt has increased steadily since the end of the Great Recession, reaching an average of $7,377 in 2017. Credit card delinquencies started rising in 2016, and more than 7 million auto loans are now over 90 days overdue, the highest amount since 2011.
“It’s not that more people are making poor financial decisions,” said Lillian Singh, a director at the economic advocacy nonprofit Prosperity Now. “It’s that wages have been stagnating, the cost of living is increasing and credit has gotten easier to obtain.”
It’s not that more people are making poor financial decisions. It’s that wages have been stagnating, the cost of living is increasing and credit has gotten easier to obtain. Lillian Singh, Prosperity Now
The United States has been trending this way for decades. During the 1970s and 1980s, Americans saved an average of 12 percent of their income. By the end of 2018, that figure had fallen by half.
American life, Singh said, has simply become more financially precarious. Adjusted for inflation, out-of-pocket costs for health care have nearly doubled since 1970. Rents rose 12 percent between 2000 and 2010, a period when incomes fell by 7 percent. Work, too, has become less reliable, with more workers employed on variable schedules and outsourced as contractors.
While all of these factors make it more important than ever for workers to save a portion of their income, fewer have enough left over to build up a nest egg. A 2012 survey by the progressive think tank Demos found that 40 percent of low- and middle-income households used credit cards to pay for essentials like rent, food and other forms of debt.
While the Bankrate.com survey didn’t break out results by race, Singh notes that African-Americans are significantly more likely than whites to rely on high-interest rate credit cards and use “alternative” financial services like payday loans.
“When you have less wealth to pull from, you’re sometimes forced to rely heavily on credit cards irrespective of your race,” she said. “But we know that African-Americans are more likely to be targeted by high-interest lenders and more likely to be sent to collection agencies when they fall behind.”