Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- Inflation pain lingers: Sixty percent of adults said price increases worsened their finances in 2024, with food and housing costs topping concerns.
- BNPL payment delays soar: Almost a quarter of customers failed to make a BNPL payment, from 18% last year.
- Gig work bridges the gap: A fifth of the people in the country earned gig income, and 31% of gig workers reported that they needed gig work to pay bills.
American households continue to feel the bite. Sixty percent of adults reported that increased prices, particularly on groceries and home living, had made their financial situation worse, according to the Federal Reserve’s 2024 Survey of Household Economics and Decisionmaking.
Increased prices forced more people to cut spending, with 51% reporting to have spent below their income and 79% adopting modifying their behavior to survive.
Although 73% of adults indicate that they’re “okay” or “comfortable” financially, the veneer of normalcy belies underlying disparities. Only 47% of those who did not graduate from high school reported that they were doing well, compared with 87% of those with a college degree who said the same.
The story is the same across racial lines — 65% of Black and 63% of Hispanic adults in the survey reported they were living comfortably, well below white and Asian counterparts.
Survey respondents also said savings aren’t providing much buffer.
For the third consecutive year in the survey, just 63% of adults reported they’d be able to pay a $400 emergency out of their cash. It’s a number that informs lenders something: Many borrowers remain living on the edge.
The warning signals are piling up. What appears to be stability may become temporary. Subprime lenders need to beware and adapt.
Increasing Dependence on Credit and Alternative Finance
Buy now, pay later financing is growing, particularly in the subprime and near-prime consumer segments. But the risk is escalating as well. Late payments escalated to almost 25% in 2024 from 18% in the prior year. That ought to make underwriters take notice.
Fraud is also consuming family budgets. Eighteen percent of survey respondent reported being victims of credit card fraud, with 8% said they were targeted by scams or synthetic ID theft. Non-card fraud losses came to a staggering $63 billion in 2024. That sort of drag can quietly torpedo repayment ability.
Shoppers continue to owe heavily on their credit cards, but interest fees and late fees still cause harm — especially to people with slim credit histories. That puts further strain on already tight budgets.
Consumers who use BNPL tend to have a riskier credit profile: They are typically younger and less-educated, with higher debt burdens and lower credit scores.
All combined — delinquencies in BNPL, fraud, and no emergency fund — it’s a recipe for disaster. One interruption and repayment schedules go out the window.
The Gig Economy as Safety Net
One of every 5 adults said they relied on gig work in 2024, according to the Federal Reserve’s economic well-being survey. For many, it wasn’t the flexibility of gig work that motivated them — it was survival. Indeed, 31% of gig workers surveyed reported they would not have managed to make ends meet were it not for their gig work.
Young people, Hispanic workers, and parents with young children are more likely to live off gig wages, according to the survey. They are also the ones with lower access to benefits, more precarious savings, and, in many cases, narrower credit histories.
Gig workers, particularly delivery drivers and contract rideshare drivers, were also more financially distressed than their counterparts. Only 65% of survey respondents reported they were doing fine or better than in the prior year, as opposed to 75% of people not in the gig economy.
Borrowers with gig income streams need closer attention from lenders. Lender offerings with flexible payment timing, buffer provisions, or dynamic repayment terms may make repayment more feasible.
Housing and Insurance Costs Rise
The median rent was $1,200 in 2024 — a second consecutive year of 10% increases. Such growth can fall with the force of a hammer in markets in which paychecks aren’t also rising.
In the meantime, 7 out of 10 homeowners went without insurance — largely because of the expense. That is a risk. One in 5 adults reported being struck financially by a natural disaster during the previous year, and for others, the impact was severe.
Loans against underinsured as well as disaster-risk properties can be more risky than models estimate. A wildfire or hurricane can make a good borrower a delinquent borrower overnight.
Lenders can take advantage of stress-testing portfolios with geographic risk overlays or by incentivizing insurance retention through education or community connections.
Higher delinquency, instability in gig work, exposure to scams, and rent inflation are part of a more hazardous lending environment for low-income borrowers. The credo is simple for subprime lenders: dig deeper.
Subprime lenders should estimate a borrower’s repayment ability from as many perspectives as possible — taking gig income volatilities, fraud red flags, and homeowning burdens into account.
All of that notwithstanding, opportunity persists. Lenders with flexibility, who honor gig hustle and prove themselves trustworthy with clarity and support, can forge enduring connections through rough times.
