Going Into the Red: How Rising Food Prices Drive Credit Use and Delinquencies

• In Event: Beyond the Score: Innovative Approaches to Consumer Debt, Creditworthiness, and Financial Resilience

Abstract

Increases in the cost of essential goods, a pared-down social safety net, and increased borrowing costs have left many consumers struggling to meet their financial needs in recent years. In such circumstances, families may turn to credit to make ends meet. Although access to credit can provide a lifeline and help families smooth consumption, overly relying on these resources may lead to financial instability if families have difficulty repaying their debt.

This study draws on administrative, public-use, and survey data to examine (1) how consumers use debt financing to afford food and (2) the role rising food prices play in rising credit card delinquencies. We draw on nationally representative survey data of 7,821 adults to examine trends in families’ use of low-risk and high-risk financial products to pay for basic needs, including Buy Now, Pay Later (BNPL), credit cards, and payday loans as well as how these vary by household composition, income, hardship, and participation in social safety net programs. We then draw on ZCTA-level credit bureau data on 10 million consumers, county-level grocery price indices from Nielsen IQ, and public data from the American Community Survey and the Bureau of Labor statistics to explore the degree to which local price changes drive changes in consumers’ credit card delinquencies.

We find that over 1 in 4 adults paid for groceries with a credit card in 2023 and did not repay the bill in full, either taking on interest for carried balances or incurring penalty fees from not making the minimum payment. These repayment challenges were more pronounced among families with lower incomes, lower levels of food security, and among those participating in federal nutrition assistance programs. These same groups of families also relied more heavily on BNPL options and payday loans – for example, 1 in 10 adults with very low food security used cash from a payday loan to pay for groceries in 2023. We also find that in 2024, an estimated 8.4 million Americans—or 1 in 20 people with a credit card—were delinquent on their credit card bills, with delinquencies rising 39.8 percent over a two-year period. 

Our results suggest that many households are experiencing financial distress and have trouble affording basic needs without relying on credit– providing a picture of growing financial fragility among households in the US. This study provides valuable information to policymakers interested in how to improve families’ financial well-being and achieve financial stability by highlighting an understudied area at the intersection of food policy, affordability, and consumer credit and debt. 

Author

• Kassandra Martinchek, George Washington University
  Presenting Author