Higher-Income Americans Showing Increasing Signs of Financial Stress
Delinquency Rates for High Earners Reach a Five-Year High, Rising 130% Over Two Years
Inflation, job uncertainties, and rising interest rates are creating financial pressure for many American consumers. However, it’s not just low- and middle-income households feeling the squeeze—higher earners, defined as individuals with incomes of $150,000 or more, are also showing increasing signs of stress. These consumers are struggling to meet payments on credit cards, auto loans, and mortgages, with delinquency rates among high earners nearing a five-year peak.
According to a new report from VantageScore, a national credit company, the delinquency rate for high earners has jumped by 130% from January 2023 to December 2024. This sharp rise highlights the growing financial strain even among those in higher income brackets.
“We’ve seen significant increases in the cost of services like home and auto insurance, which are hitting high-income consumers particularly hard. That’s driving the uptick in delinquency rates,” explained VantageScore CEO Silvio Tavares in an interview with CNBC.
Caution Among High Earners
Despite the rising delinquency rates, many higher-income consumers are exercising caution with credit. Tavares noted that while credit card balances rose by 2.9% year-over-year in December 2024, the pace was in line with inflation, suggesting consumers still have some room before reaching their credit limits.
Overall, consumer credit utilization dropped by one percentage point to 51.6%, marking the second-lowest rate in 2024.
“They actually had a lot of available credit,” Tavares said. “They just chose not to use it.” This cautious approach may be a positive sign, with consumers exercising more control over their spending amid ongoing inflation concerns.
Challenges Ahead for Consumers
Looking forward, several challenges loom for consumers, particularly with the Department of Education’s plan to start reporting missed or late federal student loan payments to credit reporting agencies this month. Borrowers who miss payments can expect their credit scores to drop by as much as 80 points. As of December 2024, the average VantageScore was 702, with a score below 660 considered subprime.
Additionally, the cost of insured losses following devastating wildfires in California, estimated at $40 billion, could push insurance rates even higher, further straining borrowers, especially those in high-income households.
“The cost of the damage will spread across all consumers of those insurance companies nationwide,” said Tavares. “It’s going to raise insurance rates, which will add to the delinquency pressures we’re already seeing in the high-income category.”
A Slower Spending Outlook
Recent data also highlights the financial challenges facing higher-income Americans. According to Bain’s Consumer Health Index, high earners’ intent to spend has dropped by 10.8%, driven by uncertainty surrounding the future performance of the stock market after strong gains over the last two years.
“We see a worrying signal from upper-income earners; their intent to spend is down, and that worries us, given their disproportionate share of discretionary spending in the U.S.,” said Brian Stobie, senior director at Bain & Company. If this trend continues, it could have a larger-than-expected impact on the economy, as high earners represent a significant portion of discretionary spending.
Signs of Economic Resilience
Despite the challenges, wages continue to grow, and the unemployment rate has remained steady at around 4%, which is fueling optimism about continued consumer spending. While the pace of growth has slowed, the outlook remains positive, with PNC Financial Services forecasting consumer spending to grow by around 2%.
“I think that’s a solid pace, consistent with a healthy economy and a strong labor market,” said Gus Faucher, chief economist at PNC.
While there are headwinds ahead, especially for high-income households, the economic outlook remains cautiously optimistic. Higher earners may be feeling financial strain, but their overall spending power and resilience in managing credit could help the economy maintain steady growth moving forward.