As grocery prices rise, one in four adults who pay for food with credit cards are carrying debt
Many Americans have housing debt and automobile debt. Now, many are also taking on grocery debt.
A new report from the Urban Institute found that 20% of adults who paid for groceries with a credit card in 2023 didn't pay off their full balance - meaning they would likely accrue interest - but always made the minimum required payment. Another 7.1% paid for groceries with a credit card and did not make the minimum payment, meaning they would likely accrue interest and also incur fees.
In addition to carrying debt on credit cards, many people (19.3%) in the survey, conducted in December 2023, paid for groceries by drawing from savings; 3.5% used a buy-now-pay-later service; and 1.9% used a payday loan.
"We see it as a canary in a coal mine, indicating that families might be having trouble," Kassandra Martinchek, a senior research associate at Urban Institute, told MarketWatch. "Typically, folks are going to pay for their groceries out of funds that have been allocated for this purpose. The use of these various forms of debt and savings might indicate that folks are having trouble bridging their income and expenses."
The cost of this debt is now at a record high, with the average interest rate on credit cards reaching 21.59% in February, compared with 14.75% in February 2021, according to Federal Reserve data.
Average household spending on groceries increased to $5,703 per year in 2022, the most recent year for which data were available, from $4,935 in 2020, according to the Bureau of Labor Statistics' Consumer Expenditure Survey.
The impact of rising food prices has been especially pronounced for the lowest-income households, who earn less than $14,191 and spent an average of $5,090 on food, amounting to 31.2% of their income. Meanwhile, the highest-income households - those who earn more than $140,363 - spent an average of $15,713 on food, representing 8% of their income, according to the Agriculture Department.
Household food insecurity, which refers to people having limited or uncertain availability of nutritious and safe foods, rose for the second year in a row in 2023, Martinchek said. People with very low food security - meaning they sometimes skipped meals or didn't have enough to eat - were more likely to have a hard time paying off their debt than those reporting less-severe food hardship, according to the report.
Walmart (WMT) executives told investors earlier this week that shoppers are now stretched, spending more on necessities like food in the face of higher prices and less on general merchandise.
The price of food and consumer goods was the No. 1 economic concern cited by respondents to a January survey by the Pew Research Center, even topping the cost of housing.
Grocery prices have become a heated political issue. Sen. Elizabeth Warren of Massachusetts and dozens of other Democratic lawmakers sent President Joe Biden a letter this week naming actions they say his administration could take to change how food companies operate, such as increasing competition, to lower "sky-high food prices."
The consumer-price index for groceries, which measures changes in prices over time, was up 1.1% in April compared with April 2023. Americans are also struggling with higher prices in other areas, including shelter (for which prices rose 5.5% year over year) and transportation services like car insurance and maintenance (up 11.2% year over year).
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