The current economic landscape has many Americans concerned. Forty per cent of Americans use credit cards, causing many to worry about paying off what they owe in the future. Quicken Inc., the personal finance software provider, has published research delving into this topic, as it uncovers which generations are being most impacted by the economic crisis.
Credit card rates are hovering just above 20 per cent. Nonetheless, 53 per cent of Millennials and 41 per cent of Gen Z are more dependent on their credit cards than ever. In Quicken’s report, it found that 35 per cent of Americans using a credit card believe they will max out at least one of their cards before the end of the year.
A further 38 per cent state they are now using credit cards to pay for expenses they previously weren’t using their cards for. Quicken notes that this could cause many Americans to enter a debt cycle. What’s worse, is that with interest rates in the double digits, escaping the cycle will be that much harder.
“Our research shows an economic divide that is widening among Americans – there is a large group of hard-working people who are still struggling financially,” said Eric Dunn, CEO of Quicken. “I’m troubled by the compounding problems facing this group – many of them are living paycheck to paycheck and relying on credit cards they may not be able to afford. It’s clear that strong financial planning is more important than ever to help Americans break this cycle and start closing the gap.”
Thirty-five per cent of Americans with credit cards admit they won’t be able to fully pay off those card(s) before the end of the year. This even applies to the upper class of earners, with an annual income above $150,000. Thirty-four per cent of those who use credit cards in this income bracket say they are going to have a harder time paying their cards off this year than last year. One in four Americans say they need to cut back on their spending because they are currently buried in credit card debt.
External factors are driving Americans to work more and spend less
Over a third (39 per cent) of Americans are not confident with the state of the economy, believing it will impact them negatively. Inflation, unemployment and rising interest rates are all contributors to this feeling. Furthermore, due to this situation many are finding themselves working harder and more but unable to spend anymore. This is especially prevalent in Millennials (49 per cent) and Americans with a household income below $50,000 per year (55 per cent) who are living paycheck to paycheck.
Economic conditions will drive Americans’ financial behaviour in the second half of 2023:
- Nearly two-thirds (62 per cent total) of already employed Americans said they are either considering a side gig in the next six months (47 per cent) or currently planning on looking for a second job in the next six months (31 per cent).
- Thirty-one per cent of Americans said if the freeze lifted on student loan payments (which it did, unfortunately), they’d have to cut down on their spending in the second half of the year.
- Forty-seven per cent of Americans with an annual income above $150,000 plan to diversify their money across more institutions for fear of another financial collapse (compared to 18 per cent of those with a household income below $50,000).
Furthering the divide: Where Americans on the other side of the aisle fall
While the younger generations are concerned about their finances, Quicken finds that one in three Boomers aren’t concerned about personal finances. In fact, nearly a quarter of Americans (24 per cent) think their finances will be impacted in a positive way because of the current climate.
While cash is believed to be on the way out due to the push from governments across the world for a digital-first economy, 41 per cent of Americans holding on to cash are looking to invest it in the next year or so. This number jumps up to 49 per cent for homeowners, and to 60 per cent for those with a household income exceeding $150,000.
Homeowners are making moves – upgrades, long-term rentals – but new home purchases are on hold
Homeowners are navigating a unique situation. Seventy-one per cent of mortgage borrowers have an interest rate below four per cent. Because of this, they do not have the incentive to consider selling and buying a new home with a significantly higher rate of six per cent or seven per cent.
This ‘lock-in effect’ is leading half (55 per cent) of homeowners to plan to invest in upgrades to their current home rather than sell or purchase a nicer home. One-third (35 per cent) say they plan to make at least one of their real estate investments a long-term rental – though this decision differs greatly by generation.
More than half (52 per cent) of Millennial homeowners would make one of their real estate investments a long-term rental. However, only five per cent of Boomer homeowners say the same. For those looking to expand their real estate portfolio, 68 per cent of current homeowners and 62 per cent of renters would consider purchasing real estate if mortgage rates were to drop.