Morning Joe Economic Analyst Steve Rattner charts the data on declining savings and rising debt.
By now, the impact of inflation and the weak job market on the “affordability” problem has become well known. What’s perhaps less well known is the deterioration of Americans’ savings and obligations to lenders as they try to maintain their standards of living.
The pressure of trying to maintain their standards of living has had a dramatic effect on Americans’ propensity to save. Since the beginning of 2024, Americans have gone from saving an average of 6.4% of their post-tax incomes to putting aside just 2.6% of their earnings. This stands in stark contrast to historical measures. During the decade of the 2000s, the average savings rate was 4.2%. In the 1990s, it was 7.2%. And in the 1970s, it was a whopping 12.2%.
That has already had noticeable, deleterious effects. Almost 30% of Americans say they have less emergency savings than a year ago, versus only 21% who say they have more. Another 17% had no savings either then or now. Just 29% reported about the same amount of emergency savings.
Another indicator of the cash crunch that many face has led to a sharp increase in the number of hardship withdrawals from 401(k) plans, even though those withdrawals bring penalties and added taxes. As reported by Vanguard, that percentage has risen to 6.0% from 1.7% in 2020. This signals that more households have exhausted their cash cushions.
Not surprisingly, the financial challenges are greater for those further down the economic ladder. Consider, for example, mortgage delinquencies. In the lowest income ZIP codes, the delinquency rate had climbed back to roughly its 2016 level of 3%. But in the wealthiest zip codes, the delinquency rate is just 0.7%. (The dip in 2021 resulted from a Covid-era forbearance program.)
Mortgages are far from the only obligations burdening Americans. Delinquency rates on almost every other type of loan have also been rising and are higher than those on mortgages. Credit card debt is the most distressed; 13.1% of balances are 90 days or more in arrears, the highest reading since 2011. A higher percentage of auto loans are delinquent than during the financial crisis. And since relief provided by the Biden administration lapsed, delinquencies on student loans are back to prior high levels.
When Americans face unmanageable student loan problems, they are more likely to have other financial problems. For example, among borrowers who have defaulted on student loans, the percentage of those delinquent on credit card debt has risen to 57%, up from 37% in 2019. On autos loans, the percentage rose to 40% from 29%. And on mortgages, to 21% from 14%.
