Wealthy Americans aren't just pulling away from their poorer counterparts in income and wealth: They're also leading in borrowing for all categories except student loans, magnifying their advantage in purchasing power.
As earnings diverged and lending standards tightened in the wake of the financial crisis, Americans in top-earning zip codes have held increasingly more than lower-income individuals in mortgage, credit-card and auto-loan balances,
Federal Reserve Bank of New York research shows. That means the rich have gained greater ability to leverage their incomes to buy homes, cars and merchandise.
"The income gap overall has been widening during this period, and mortgage and credit-card balances tend to be positively correlated with income," the authors wrote. "So, the declining share of mortgage debt and credit card debt in the lower-income zip codes over the last decade is broadly consistent with the widening income gap over the same period."
The researchers looked at data from the New York Fed Consumer Credit Panel,
Internal Revenue Service and Census Bureau to obtain income per adult for zip codes, which they then divided into five groups for the analysis. The chart linked to below shows what has happened with the mortgage divide: The ratio of balances for those in the bottom fifth, compared to those in the top fifth, has resumed a longer-run downward trend after rising during the easy-lending subprime mortgage era.
(Chart: Low-income mortgages)
People in the least-affluent zip codes are also responsible for a smaller share of credit-card balances, though the decline has been more consistent over the period.
(Chart: Lower credit card debt)
The data tell a nuanced narrative. Barriers to borrowing can make it hard to invest in long-term wealth-building assets, such as real estate. Assuming that these trends arise from poor access for low-income groups, that might be troubling. At the same time, with credit comes the possibility of mountainous debt and even default, and payments can be harder to keep up for those who earn less.
While wealthy zip codes hold the lion's share of auto loans, poorer Americans are regaining some ground. That could be the result of an increase in subprime auto lending, with U.S. financing companies accepting borrowers with lower credit scores and easing terms by giving consumers as long as seven years to repay.
(Chart: Auto loan comeback)
Meanwhile, poorer zip codes increasingly dominate student loan borrowing. Average student loan balances in the lowest fifth amounted to 59% of those in the highest fifth in 2014, up from 52% in 2004.
(Chart: Student loans)
That change could be bad news: Students from low-income backgrounds are much less likely to graduate, and there's little earnings premium for having attended school if you don't finish.
