US Young Adults Struggling Amid High Interest Rates...Sharp Rise in Credit Card Delinquency Rates

US Q3 Credit Card Delinquency Rate
8.01%... Highest in 12 Years
Concerns Over Slowing Steady Personal Consumption

As the economic recession and inflation continue, the delinquency rate on household debt in the United States is soaring. Observations show that Americans, who had been covering consumption with debt, are unable to repay credit card bills and loans due to the impact of high interest rates, raising concerns that the previously robust U.S. personal consumption may slow down.

Supermarket in California
Photo by AFP Yonhap News

On the 7th, the Federal Reserve Bank of New York announced that U.S. household debt reached $17.3 trillion (approximately 2,257.1 trillion KRW) in the third quarter of this year, an increase of $228 billion compared to the previous quarter.

The increase in debt was driven by consumers under the age of 50. The proportion of debt held by those under 50 accounted for 55% of total household debt this quarter. This is a 7 percentage point jump from 48% in the second quarter of this year. This is the largest increase rate since the Fed began compiling statistics.

Along with the debt of young and middle-aged adults, delinquency rates also rose sharply. In the third quarter of this year, the outstanding balance on U.S. credit cards increased by $48 billion from the previous quarter to $1.08 trillion. This is the highest level since 2003. At the same time, credit card delinquency rates also rose. The rate of unpaid credit card debt in the third quarter was 8.01%, the highest level in 12 years since 2011. Among these, the long-term delinquency rate of over 90 days was 5.78%, up 2.09 percentage points from 3.69% in the same period last year.

In particular, the long-term delinquency rate of over 90 days increased sharply among young people aged 18 to 39. The Fed explained, "Young people are burdened with auto and student loans, making them more likely to default," and "rising rent is also analyzed to have encouraged credit card delinquencies among young people with low homeownership rates."

These figures are likely to lead to a decrease in the consumption capacity of young and middle-aged adults in the future. So far, the U.S. has recorded robust consumer spending even amid rising prices, as consumers engaged in revenge spending using savings accumulated during the COVID-19 period. Retail sales recorded consecutive month-over-month increases from March to September.

If personal consumption shrinks due to high interest rates and inflation, it is expected to impact the overall U.S. economy. If private consumption, which accounts for 70% of the U.S. Gross Domestic Product (GDP), falters, corporate earnings could also deteriorate. The slowdown in personal consumption is also expected to have a considerable impact on the financial policies of the U.S. Federal Reserve (Fed), which controls global financial markets.

Bloomberg reported, "New delinquency rates have increased across most types of debt, including credit cards and student loans," adding, "Policymakers are closely monitoring whether consumers can continue to repay debts and maintain consumption despite decreasing savings and increasing debt."

This content was produced with the assistance of AI translation services.