Marketplace - Credit card debt data reveals “two different Americas”

Episode Date: June 19, 2024

Credit card delinquencies are up overall in the past year — but that’s not the whole debt picture. Wealthier consumers can pay off their debt right now, driving up the nation’s average credit score. It’s a tale of two Americas. Also in this episode: Federal data reveals that nearly 1 in 4 Black prospective homeowners are denied a mortgage, and we catch up with a couple whose gift-giving journey was featured on “This Is Uncomfortable.”

On the show today, look at home ownership. Just how tricky it can be talking about money with your partner. And have you noticed that spin class you go to feels a lot more like, I don't know, a nightclub? From American Public Media, this is Marketplace. In Portland, Oregon, I'm Rima Grace in for Keiristal. It is Wednesday, June 19th. Thanks for joining us on this Juneteenth holiday. So about home ownership, this week we're getting new data about existing home sales, which fell last month. Till then, we're turning our attention to data that shows how the path to home ownership,

a path of course to building wealth, can look very different depending on who you are. Black borrowers, for example, are way more likely than white borrowers to get turned down for a mortgage. To be more exact, nearly one in four mortgage applications submitted by black people are denied compared with one in 10 for white borrowers. That comes to us from federal data from the 2023 Home Mortgage Disclosure Act compiled recently by Zillow. Now, this gap has some serious consequences. Today, nearly three quarters of white households own their home, compared with nearly half

of black households. Marketplace's Stephanie Hughes has more. Stephanie Hughes The most common reason lenders gave for turning down black would-be-barers credit history. That's a record of your finances and how you've handled debt captured in your credit score. Black consumers are more likely than white ones to have a lower credit score or no score at all. Michael Neal is a senior fellow in the Housing Finance Policy Center at the Urban Institute. So right there, you're out of the race, the traditional way that we assess your ability to repay a mortgage.

Neal also points out historic discrimination in the housing market still has consequences for black borrowers today. In the past, lenders could turn black applicants away because they lived in poor and often primarily black neighborhoods. This is called redlining. It's illegal now, but it still affects black buying power. You're denied a loan because of redlining. Now you don't have the assets to pass to a future generation. Whereas say whites did. And if white people already own their homes, their descendants

benefit says Orfeh Divungi, a senior economist at Zillow. First-time buyers are getting help from what we call the bank of mom and dad. And so people without that help are faced with having to save longer to come up with the funds necessary for down payment in today's environment. And a higher down payment makes it easier to qualify for a mortgage. There are some government programs that assist with down payments. And Divongui is also advocating for credit scores to consistently factor in more data.

Rent, phone bill, utility payments, all of those should count towards your credit so that people who may not have access to banking can still have a credit history. And when they're ready, become homeowners. As this country's population grows increasingly diverse, Michael Neal of the Urban Institute sees two consequences to not addressing the disparity. Number one, you know, massive inequality. Number two, in my mind, challenges for the industry in terms of how they're going to drive revenue.

So he says there's a business case as well as a social one to helping more black borrowers become black homeowners. I'm Stephanie Hughes from Marketplace. Wall Street was closed today in observance of Juneteenth, but do not worry. We'll have some more details when we do the numbers. So Retail sales numbers came in a bit lower than expected yesterday. Consumer spending inched up just a tenth of a percent from April to May, another sign that consumers are starting to feel the strain of sustained higher prices.

Many of them, though, have been keeping up their shopping habits by relying on credit cards, maybe just a little too much. Economists have been warning for months now about the rise in credit card delinquencies. But as Marketplace's Kimberly Adams reports, those numbers, of course, need some context. Credit card delinquencies are up year over year, says Silvio Tavares, president and CEO of credit scoring company VantageScore. But if you look at it month to month, credit card delinquencies have actually been improving through March, April, and a little bit through May. Tavares says the average credit score by his company's rankings is pretty decent, 702.

But that hides a bifurcated market, two different Americas. Wealthier consumers are paying off cards and paying down debt, boosting their scores. But that lower consumer is increasingly falling behind on their credit balances, and that's really where we're seeing the localization of the increased delinquencies. That lines up with data from WalletHub, which found that the $1.26 trillion in total credit card debt is down 14 percent from its 2007 peak, but average debt per household is still well over $10,000. That's a substantial part of people's incomes.

Cassandra Happy is a Wallet Hub analyst. So while we're seeing this increase in spending and it's helping some factors within the economy, a lot of people are taking on debt in order to help fuel the spending in the economy. A lot of people are taking on debt in order to help fuel the spending in the economy. That's already showing up in some early indicators. Matt Layton is a senior vice president at prepaid legal services company LegalShield. He says they analyze the roughly 150,000 calls

they get every month. And these days? A larger percentage of those are coming from questions about how do I pay my bill? How do I deal with the bankruptcy? We're seeing each of those increase each month. The company mines that data to create its Legal Shield Consumer Stress Index and found, for example, a 13% increase this year

in people calling about collections. In New York, I'm Kimberly Adams for Marketplace. For more economic context, be sure to listen to David Brancaccio and our Morning Report team to get you ready for your economic day. Give it a listen. Kimberly was just talking about the way that consumers are spending. But now a look at where they might be spending. Philip Rawlins is one of our retail regulars. He runs the record and comic store Offbeat over in Jackson, Mississippi.

So we decided to give him a call to see how things are going. Business. Well, okay, so we're back in our, what I like to call the summer slump because people are traveling or out of town or it's just too hot to go outside and visit a comic book or record store. So I'm trying to maneuver around that. Thankfully, I do have regulars, people that come in weekly to get the weekly comics and stuff, so that's a big income source

that's really been helping out this year so far. ["Downtown Jackson"] The city, Downtown Jackson, just started implementing a new parking meter system, because the old parking meter systems were all jammed up or just outdated. So we have a digital kiosk at each street and you have to pay with your phone or whatever. But it's like a dollar an hour. But people are complaining about a dollar an hour.

So that's that. But thankfully, most of my customers come on the weekend anyway. I do have regular that come during the week, but they don't mind paying like a dollar, park, get in and get right back out. The mood for my regular customers there, you know, they're kind of content. Honestly, this is what a lot of people call their third space, which is, you know, away from home and work that you're comfortable in and, you know, they've come here and they're getting a record reissue

that they've been waiting on or a new comic or a new issue that's been read last month so you were waiting on this month. So a lot of people here, they're kind of content. They're like, yeah, summer's hot. I'm gonna keep my kids annoying me, but I got my comics and I'm bringing my kid here trying to get them to read more.

This store was started because I was part of the Mississippi Black Leadership Institute. And at the end of the institute, we had to come up with a project that affects the community. And all my peers ran for office or were doctors or opened up a practice or something. And my idea of community was always comic book shop and record stores. So it's kind of always been a third space. I just, you know, the term is so new to me. So it's just, you know, having I guess a definition for it. Um, it said like, I guess community meeting ground or just, you know, stuff like that.

I would say my biggest challenge right now is just keep momentum going, steady traffic coming in. The parking issue and the streets, the construction is scaring people off. So I'm constantly online like, hey, this is how you park. It's where you park and finding time honestly to rest. And that's been a kind of a challenge. I've been actively trying to like, just do more outside of the shop.

I'm walking at least a mile when I get home and working out in the morning and trying to motivate myself to do that. Over the next month, I would hope to see more people, you know, of course, discover the shop. I'll be meeting with the coalition that I'm part of, Black-owned record stores called FAMS. I'll be linking up with them back in the July when we go to summer camp. It's like a retreat for all independent record

stores. And that'll be my first like real break, honestly. The store will be closed for like a week and I'll be down in New Orleans so people will be upset or sad but I'm just like I need a I need a breather. That was Philip Rollins looking forward to a break from running offbeat in Jackson, Mississippi. Coming up... The Taylor Swift concert just came out on Disney Plus. This doesn't compare to it.

This is so much better than watching it at home. A workout class that doubles as a Taylor Swift concert? Yeah, okay, I'll try it. But first, let's do the numbers. U.S. markets are closed today for the federal holiday, so why don't we take a look at some other numbers? Stephanie Hughes was just telling us about black homeownership. If you take a look at housing stats since the start of the year, you'll see home prices

across the country continue to go up. That's according to the S&P CoreLogic Case Shiller Composite. Prices are up nearly 1.9% since the start of the year. If you're in San Diego, New York, or Cleveland, you're especially seeing those prices go up. According to Redfin, the top five states that home buyers were looking to move to over the past year were Florida, North Carolina, Arizona, South Carolina, and Tennessee. The top five states homebuyers searched to move away from? California, New York, Illinois, Washington, and Massachusetts.

Meanwhile, mortgage rates are still stubbornly high and make any move challenging for homebuyers. The rate for a 30-year fixed mortgage is now just under 7%. That rate has hovered around 6.5 to almost 7.25 since January. Since today is Juneteenth, some numbers about the federal holiday, which celebrates the end of slavery in this country, all 50 states have recognized Juneteenth as a holiday or observance. But of those, 28 states and the District of Columbia now observe it as a permanent paid or legal holiday. But of those, 28 states and the District of Columbia now observe it as a permanent paid

or legal holiday. You're listening to Marketplace. This is Marketplace. I'm Rima Chreis. So I host a Marketplace show called This is Uncomfortable. It's a podcast where I talk with people about their relationship with money, how it complicates their lives. And more than four years ago, during the very first season, I talked with this one couple, Mandy Cuhy and Zach Amon. They were dating at the time, and they had this big misunderstanding where they kept giving each other these extravagant, expensive gifts that neither of them really wanted. They ended up in a gift-giving arms race that eventually came to an end once they, you know, actually talked about it. I was curious how Mandy and Zach are doing today more than four years later, you know,

if there have been any changes in their spending habits and communication around money. So I called them up and first they had some news to share. What haven't we been up to? We got married. Yay, congrats. Zach and Mandy, who are in their early 30s, got married last year, then settled down near Washington, D.C. Well, have things changed at all since we last talked? Or are you all both still kind of meh when it comes to gift giving?

How are y'all feeling? I think the amount of gift giving that we have attempted to do has decreased just because we know that that's not each other's love language anymore. Yeah. We kind of talk, hey, in terms of like gifts and how you want to be loved and celebrated this year, what do you prefer? Do you want something thoughtful slash sentimental, something practical or something fun? So, they're on the same page now about gifts. But they still have different philosophies around money.

Zach is a bit more frugal, which he attributes to growing up in a low-income household, while Mandy is more of a spender. Those differences have come up a lot recently, as they've been talking about buying a house. I would like, you know, more space in a kitchen. I want to be able to like grow some herbs. I would love a little garden. I want a patio. I want to sit outside and feel the sun on my face.

For me, buying a house is more than just like making it an asset, not having to pay rent, but I know that Zach's brain works differently than mine, right? The spreadsheets are coming out. Yeah, the spreadsheets are being, oh my God, the spreadsheets came out. I'm like, okay, I get it, cool, but like, how are we going to pay for it? Exactly, so when I was presenting the information to him

as to like why I think we need to purchase a house, I was like, okay, let's talk about the numbers, let's talk about the monthly payments, let's talk about percentages and interest and savings and all these very boring, dry topics. Then once he's on board and he's like, okay, I hear you now, I'm following, then I can sprinkle in the like, but I really just want a freaking patio.

And I think I've learned that. Right. Like tailoring the conversation to how his brain works and being patient with that before springing all of your thoughts and feelings. I think part of it is also knowing their communication style and not expecting them to react and respond in the ways that you would react and respond. So I think that's been really helpful for us is knowing how the other person receives love, receives affection, receives financial information is really helpful because then you have a more productive conversation

than just being like, I want a patio and a basil garden. Why can't you just accept me for who I am? Because then he's like, right, but how much is the basil garden going to cost me per month? Right? Like, do we need that garden? No. Yeah, the answer is it's not necessary, but it will bring us joy. Yeah. Since we last talked, have you all made any new observations about your relationship with money either as individuals or as a couple?

I'm not going to say that one of us has completely changed their view of life. But I think a lot of the success that we have now is we built up that trust within each other to be able to come and have conversations of saying, like, you know, Manny can say, I know you don't like spending money, however, we should look at doing this, you know, before, whereas I might have been saying like, oh, we don't need to do that. Now it's more of a, if we're gonna do it, then here's some of the things that we need to be focused on

for the next, you know, three, four, six months until we get to that point. Let's put our heads together and it's me and you versus solving this math problem. Yeah, it is a math problem at the end of the day. Yeah, I think Zach is completely right. We always kind of look at it as, okay, this is the problem.

How can the two of us figure out the best way to tackle it? So I feel like I have to ask you all, what is one piece of financial advice, practical or emotional, that you all have learned together as a couple that you'd like to share with people? I think the the advice that I would have is to communicate early and often. The way to make it less uncomfortable is to talk about early whenever it might be a small issue or you know at least you have somebody to be uncomfortable together with. That's a good one. So it's a deal of, hey, I'm not really sure how to tackle this problem.

Maybe your partner doesn't know how to do it either, but the fact that there's somebody that you trust and whose opinion you value enough to be their partner, if they're also saying like, yeah, that's difficult, that's comforting in a way. That was Zach Amon and Mandy Coohey out of Washington, DC. You can check out their original episode back in 2019. Plus more stories from This Is Uncomfortable, wherever you get your podcasts. the If you go to a cycling or a spin class, there are a few things you can reliably count on. Synchronized movements, a semi-dark room, and music so loud you can barely hear yourself panting. And there's also a good chance you'll recognize some of those songs.

More and more, we're seeing music labels striking deals with fitness brands. Many musicians are making more money from companies like Peloton than they are from streaming platforms or social media apps like TikTok. Some are even launching singles that way. The BBC's Megan Lawton has been looking into the trend. Raise your hand if it is your first Swiss Sunday with me. I'm at Sweat and Tonic Gym in downtown Toronto, where the daily schedule is packed with music-themed fitness classes. There's Pilates done to a Shakira soundtrack, and right now, a Taylor Swift spin class.

If you don't know this song, I don't know why you wrote this class. Right, May? Honestly, you forget that it's even a workout. Katherine Wong is a regular at the class. I feel like when you're having so much fun, you're not counting down the seconds until the class ends. You're truly enjoying it and having a good time. She and her friend Giovanna Macedo agrees.

The Taylor Swift concert just came out on Disney+. This doesn't compare to it. This is so much better than watching it at home. Today's spin class is an hour long, and in parts feels more like a gig, with riders singing, clapping, and waving their towels in the air. It's being hosted by fitness instructor Megan Vanderbars. I want them to sing, interact and have fun.

So the first song makes a big difference. Right away you can see them all get excited. Over the last few years, fitness brands have paid out millions of dollars to music labels to use their songs in their exercise classes. Beyoncé and Peloton have struck deals, so have Equinox Fitness Clubs and the Jonas Brothers, and last month, Dua Lipa collaborated with Barry's Bootcamp Gyms to help promote her new single. I know I need someone to hold me close to you Crystal Delgado is an entertainment attorney and the founder of Delgado Entertainment Law.

I work with major labels, I work with small labels, indies, and everyone in between. entertainment attorney and the founder of Delgado Entertainment Law. She works with musicians and fitness businesses on licensing. With music labels taking in less money from streaming, she says they're getting creative about generating new revenue streams. They have music catalogs and so they're trying to figure out smart ways to license them. So going to a gym and saying, all right, cool, we're giving you a license for a year or 10 years. It gives you an opportunity to come back after that 10 years and do a new deal. Goldman Sachs estimates in 2022 Peloton paid $267 million to the recorded music industry. That's more

than TikTok, YouTube or Instagram. Earlier this year, TikTok failed to reach a new licensing agreement with Universal Music, which resulted in millions of songs being muted. Delgado says that show's labels are willing to play hardball. That was just an example of them saying, okay, we're not going to do this because we just get paid more elsewhere. Songs aside, there could be even more opportunities for labels to make money digitally from fitness classes. Personal trainer Megan Vandervaars

is open to the idea of exercising with big stars in the metaverse. If there is a way where we virtually are all working out together next to Taylor Swift, I definitely see that being in the future. Attorney Crystal Delgado thinks more immersive experiences will be coming soon. Maybe you're wearing a headset, but maybe we have these mini spheres at some point that you're in, kind of like a 3D kind of experience. I can see us going there.

She warns that will mean more complicated licensing deals and fitness brands will have to pay more money for it. In Toronto, I'm the BBC's Megan Lawson for Marketplace. This final note on the way out today. We talked earlier about states that recognize Juneteenth as a paid or legal holiday. To follow up on that, I saw an article in Axios that gives us an idea of how private employers are handling today. 41% of large employers are observing Juneteenth this year by making it a paid holiday. That's according to Mercer, which surveyed large companies. That number is up just from 39% last year. So not a big jump, 39 to 41. The rate of growth on this has slowed down a considerable amount from when President

Biden signed the bill, recognizing today as a federal holiday back in 2021. You're still hoping more companies get on board next year. Our media production team includes Brian Allison, Jake Cherry, Jessen Duller, Drew Jostad, Harry O'Keefe, Charlton Thorpe, Juan Carlos Torrado, and Becca Weinman. Jeff Peters is the manager of media production and I'm Rima This is APM.