America's Thriftiest Cities

July 13, 2009— -- For many Americans, instant gratification has taken a backseat to long-term financial security. In May 2009, the U.S. personal income savings rate increased to 6.9 percent from 0 percent a year earlier. This is the highest level since December 1993, according to the Commerce Department.

Given the recession, it's understandable that Americans are hording more cash by spending less. Some, though, are doing a better job than others.

Consider San Jose, Calif., and Detroit, Mich. Both metros suffer from a high unemployment rate; San Jose's is 11.2 percent, and Detroit's inching up to 14.9 percent in May 2009, according to the Bureau of Labor Statistics. The median income in San Jose is $82,208; in Detroit, it's $42,809. But in both the credit card debt-to-household-income ratio is relatively low. In San Jose, the average household owes 11.46 percent of its income to credit-card companies. In Detroit, that household needs to pay back 13.02 percent.

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Both have less credit card debt relative to income than those living in places like Miami--indebted by an average of 22.61 percent--and Los Angeles, with an average debt-to-income ratio of 16.81 percent.

At 11.43 percent, Washington, D.C., boasts the lowest household credit card debt-to-income ratio. One reason? Government jobs attract those who are conservative about personal finances, suggests Alice M. Rivlin, an economist at Brookings, a Washington, D.C.-based independent research firm. What's more, this is a relatively prosperous metro area with a low unemployment rate of 6.2 percent (the national average is 9.5 percent). The District of Columbia also has high concentrations at the top and bottom of the income distribution spectrum--with 20 percent of residents below the poverty level--and a smaller middle class.

Other cities topping the list include Nashville, Tenn., Boston and Kansas City, Mo., all with credit card debt-to-income ratios below 12.1 percent.

Behind the Numbers

To determine where Americans are most frugal, we turned to Atlanta, Ga.-based Equifax, one of the three largest consumer credit reporting agencies in the country. From its database, Equifax determined total credit card debt in each of the 50 largest metropolitan statistical areas and metropolitan divisions from the first quarter of 2009. MSAs are geographic entities defined by the U.S. Office of Management and Budget and used by federal agencies in collecting, tabulating and publishing federal statistics. We found the average credit card debt per household by dividing the number of households in each metro area by the overall debt of the area.

Finally, we divided each metro area's average debt per household by May 2009 median household income, determined by Moody's Economy.com, an independent provider of economic analysis and data. This last calculation gave the average percent of household income owed to credit card companies in each place.

As with San Jose, Detroit and Washington, D.C., many of these metros are struggling with high poverty levels and a dwindling middle class. The metro area of Providence, R.I., for example, has lots of poor people in its inner city and lots of upper-middle- and upper-class families in surrounding neighborhoods. Manufacturing, one of the city's largest employers of the lower-middle class, has disappeared almost altogether. And construction--another major industry--has decreased since the subprime crisis took hold. All this adds up to less debt, but at the cost of a slimmed-down middle class.

Since 2000, the Providence metro area has experienced a population decrease of 17,600. In 2007, the number of households in the city of Providence with a median income between $50,000 and $74,999--defined as middle class by the government--was just 14.6 percent. Households earning $75,000 or more in 2007 accounted 22.5 percent of the population; household incomes under $34,999 accounted for 49.7 percent of the population. In the city itself, 16 percent of households reported incomes below poverty level in 2007, according to the U.S. Census. (And with a May 2009 unemployment rate of 12 percent, current levels are presumably higher.)

Baltimore is similar to Providence. Surrounding towns--Columbia, Md., Towson, Md.--are affluent, with median household incomes at $94,966 and $64,313, respectively. On the other hand, 13.3 percent of Baltimore's inner-city residents live below the poverty line, with 48.4 percent of households earning under $34,999 in 2007. Just 16.8 percent of households earned $50,000-$74,999; 20.4 percent earned over $75,000. Like Providence, Baltimore has less credit card debt because its middle-class population is dwindling.

To combat the (presumed) flight of its middle-class population, Baltimore created the More in the Middle program in 2008, dedicated to convincing middle-class black families to remain in the city by helping them form financial ties in the area, such as facilitating home ownership, business ownership and higher education. Baltimore contrasts sharply to places where lots of middle-class retirees have settled down over the last two decades, like Miami and Phoenix, Ariz., in which each household owes an average 14.62 percent of its income to creditors. Tampa, Fla., is indebted by an average of 17.10 percent.

It seems that, these days, the key to being frugal is either having little or a lot of money.

"The middle class is carrying the load in this recession," says Michelle Nazareth, an economist and author of The Leisure Economy. Where the middle class is thin, so is the pile of credit-card bills.