On January 22, I posted an article on consumer financial strength driven by the amount of cash consumers have in checkable deposits as reported by the Fed.

1. Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances
Created by: Salvatore Tirabassi
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2. On January 22, I posted an article on consumer financial strength driven by the
amount of cash consumers have in checkable deposits as reported by the Fed. If you
look at the bottom 50% of households by wealth, they are sitting on an astounding
2.5x as much cash in their checking accounts as they had before the start of COVID.
See the chart below.
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Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances

3. You can see that the amount of cash peaked in September 2022 and has since
been declining. The rate of decline though indicates that it will be some
time before consumers get back to pre-COVID cash levels.
In January, Transunion reported that more recently issued credit cards are
reaching high delinquency rates much earlier than expected. If you are new to
consumer finance, we look at how credit performs from the date of issuance
(also called a vintage) and that gives you the ability to compare how
different issuance dates perform against each other.
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Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances

4. Issuance dates closer to hard financial times should underperform the
preceding issuance dates.
Let’s look at the Transunion delinquency chart.
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Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances

5. Document Copyright 2023
Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances

6. For example, the orange line (Q4 2018 vintage pool) took 54 months to reach a
delinquency rate of about 10%. Now look at the light blue line (Q4 2021
vintage pool). It took only 15 months to reach 10% delinquency. The most
recent issuance date, the purple line (Q4 2022 vintage pool), is already at a
faster pace than all previous vintage pools. Notice it is steeper than the
light blue line that preceded it in Q4 2021.
If consumers are sitting on so much cash, why are credit cards going
delinquent at a quickening rate?
This chart shows the percentage of credit cards (as a pool) issued in Q4 of each of
the last 5 years to reach 90+ days delinquency (no payments in the last 90+ days).
Each recent vintage pool has reached the level of delinquency of the previous vintage
pool in a shorter period of time.
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Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances

7. The cash balances above reflect the bottom 50% of households, as a group.
Hidden in that data are the stratifications of cash by household wealth,
which would likely show lower cash savings as you move down to less wealthy
households.
Similarly, the Transunion data above also groups all credit risk
stratifications together. In a stratified view by credit risk wealth tier,
you would likely see that the rates and pacing of delinquency will be higher
and faster for lower-credit consumers.
There are many factors that could be at play here. Here are some of the drivers that
I think are important.
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Cracks in Consumer Credit Card
Delinquency Despite High Cash
Balances
The positive effects of COVID economics (higher wages, stimulus, new credit
availability, savings from stay-at-home orders) are unwinding more quickly
for the lower credit consumers.

8. This part of the market had the opportunity to spend more and put more on
credit during COVID, and the banks were eager to bring new credit card
accounts on. As the economy has gone back to normal over the last 24 months,
these consumers have more regular demands on their cash, which took a
backseat during COVID.
Moreover, they now have credit card bills to address, which carry interest
rates at the highest rates we have seen in years. The combination leads to
increasing delinquencies, even though cash looks abundant.
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Cracks in Consumer Credit Card Delinquency
Despite High Cash Balances

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