Inflation, Job Concerns, and High Interest Rates Squeeze High-Income Earners
High-income earners, defined as those with incomes of $150,000 or more, are showing signs of financial stress despite their high earning potential. According to a report by VantageScore, a national credit company, the delinquency rate among high-income earners has risen 130% over the past two years, reaching a five-year high.
The delinquency rate is attributed to increased services costs, such as home insurance and auto insurance, which are hitting high-income earners harder than others. VantageScore CEO Silvio Tavares noted that high-income consumers are being cautious with credit, with credit card balances rising 2.9% year over year in December 2024, a pace that matches inflation. Additionally, consumers have available credit and are choosing not to use it.
The rise in delinquency rates among high-income earners is a concern, as it may indicate a loss of confidence in the economy. High-income earners are also showing signs of caution when it comes to spending, with a 10.8% drop in their intent to spend due to uncertainty around the future performance of the stock market.
Despite these concerns, wages continue to grow, and the unemployment rate remains around 4%, indicating a positive outlook for consumer spending. PNC Financial Services expects consumer spending to be around 2% in the coming year, a pace that is consistent with a good economy and labor market.
The increasing cost of insurance rates, particularly after the California wildfires, may further stress borrowers, with the potential to raise insurance rates and increase delinquencies. The start of reporting missed or late federal student loan payments to national credit reporting agencies may also negatively impact credit scores. As a result, borrowers who do not pay their loans can expect an 80-point drop in their credit score.
Overall, while there are signs of financial stress among high-income earners, the outlook for consumer spending remains positive, with growth rates expected to continue.
