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The Rich Are Different: They Have Jobs And Can Pay Down Their Credit Cards

Borrowing by U.S. consumers has been falling since the middle of the recession -- in the aggregate, anyway. Beneath the surface, people at the high end of the income scale have been paying down their loans, but the little guy is not making any progress, and in fact is facing higher credit card balances. But it's only logical, because higher income people also have been better able to hang on to their jobs.

During tough periods, consumers tend to do the smart thing -- getting by on less consumption, reducing their debt levels and increasing savings. The graph plots total consumer credit since 1980. Note that growth in debt was flattish in the 1980s and 1990s recessions, and the one we've just been through, although in the early 2009s, businesses were hit harder than consumers so borrowing continued apace.


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Many consumers, however, are not paying down their loans, and the split is on income lines, says (via e-mail) Anuj Shahani, who is director of competitive tracking services for Synovate, a global market research firm:

Yes, there is a topping of credit card debt overall, but what's really going on is actually very interesting. The prime and super-prime segments are successfully paying off their credit card debt as annual percentage rates have increased, while the subprime segment is actually experiencing increasing credit card debt.
This graph is from Synovate, and shows the decline in average balances for good credits versus weak ones. The latter owe about 15 percent more than they did in 2007, while good credits' balances are down six percent.


Strong and weak credit doesn't necessarily follow income lines, but surely there is a strong cause and effect there. And the unemployment rate has been much higher for people at the low end. These tables come from a paper by scholars at the Center for Labor Market Studies of Northeastern University, Boston, and date back to 2009.



No surprises there -- people without jobs have lower incomes by definition, but these measures are a reminder of just how serious the recession was. I imagine a fresh look at the data would show a similar pattern.

Keep all this in mind whenever you hear macro statistics that suggest a recovery -- the U.S. really is two economies, and the rich are different.

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