Most Americans are more indebted than ever, underscoring a persistent and widening wealth divide in the U.S.
Consumer debt, including credit cards, rose to an all-time high for the 118 million U.S. households among the bottom 90%, according to the Federal Reserve's latest
Meanwhile, consumer debt among the top 10% of households is virtually unchanged over the past year, the Fed's data show.
Inflation is running near a 40-year high, forcing many households to load up on credit cards or dip into savings to make ends meet. Lower-income families spend a greater share of their earnings on necessities like groceries and gas, so higher prices can afflict those households much more so than wealthier ones, said Paige Ouimet, a finance professor at the University of North Carolina's Kenan-Flagler Business School.
"If your costs are rising and your wages are not picking up, how are people going to fill that gap? Without substantial savings to draw from, it's going to have to come from debt," she said.
The Fed data show that consumer liabilities increased to $4.22 trillion in the second quarter of this year for the bottom 90%. As the central bank continues to push interest rates higher to tame inflation, that'll translate to higher costs for consumers to service their debt.
Credit card interest rates for new accounts have risen above 20% for those with "good" or "fair" credit,
Since the pandemic, higher-income consumers in particular have seen checkable deposits and currency holdings soar, allowing them to better manage liabilities. But Americans in the bottom half saw cash holdings peak in the first quarter of the year, taking the savings rate down to the lowest since 2009.
— With assistance from Ben Steverman.
