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US Consumers Deplete Savings, Increasing Credit Card Debt Amid Inflation

2023.12.26

 

Key Takeaways

  • U.S. consumers are rapidly depleting pandemic savings, leading to an uptick in credit card usage and loan debts.
  • Major banks report significant increases in credit card spending and loan balances, indicating changing consumer behavior.

Depleting Pandemic Savings

U.S. consumers, grappling with persistently high inflation, are quickly spending down their pandemic-era savings. Marianne Lake, co-CEO of JPMorgan Chase’s consumer bank, noted a decline in cash reserves among the bank’s lowest-income clients, dropping from an average of 12 days’ cash to around 15 days. This trend signals a shift towards the end of pandemic-driven financial cushions.

Rising Reliance on Credit

To maintain lifestyles amid cost pressures, consumers increasingly turn to credit cards and loans. Credit card spending soared in the third quarter across major banks, with JPMorgan Chase witnessing a 9% rise and Wells Fargo a 15% increase. However, Citigroup saw a modest 2% increase, impacted by reduced usage of store credit cards.

Escalating Credit Card Balances

Credit card loans, representing unpaid balances, have significantly risen, indicating prolonged bill payments. JPMorgan Chase experienced nearly a 16% jump compared to last year, with similar trends at Wells Fargo and Citigroup. This increase in credit card loans reflects the financial strain on consumers as they try to manage rising living costs.

Changing Bank Deposit Trends

Banks are noticing a drop in consumer deposits, a clear sign of increased spending. JPMorgan’s consumer segment reported a 3% decline in deposits year-over-year. Similarly, Citigroup observed a 5% decrease in personal banking and a 2% drop in wealth management. This trend is attributed to consumers spending more and reallocating cash into higher-yielding alternatives.

Wealthy Clients and Spending Patterns

The spending growth, particularly in the travel and entertainment sectors, is predominantly driven by wealthy clients. Citigroup’s CEO Jane Fraser highlighted this trend, noting a more cautious approach to spending among consumers. Wells Fargo also reported deposit reductions in both consumer banking and wealth management sectors, with CEO Charlie Scharf attributing this to consumer spending habits and the pursuit of higher returns.

 


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