Ana Sayfa Blog

Asset holdings by card payment patterns and demographic groups

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In this section we explore asset holdings of card owners and credit revolvers to
highlight the puzzles of simultaneous accumulation of assets with high-cost credit
card debt. In all survey years, the highest levels of median liquid assets (defined as
amounts held in checking accounts, savings accounts, money market deposit accounts,
and call accounts at brokerages), median financial assets, and median total net worth
are for those households that used their bank-type credit card to make new charges,
but did not have a balance outstanding. This relative ranking holds for all survey years,
and for virtually all demographic subgroups, and in fact has become more pronounced
over time. In 2001 dollars, median financial assets of households in this category in
2001 were $125,000, more than double the financial assets of such households in
1983, and median net worth at nearly $320,000 was about 50 percent higher. This
increase in wealth can be explained in large part by the rise in the equity market over
the 1990s and increased ownership of equities by these households: in 1983, less than
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half of households in this category were stockholders, but by 2001 that fraction was
75 percent.
The next highest median asset levels are held by those who have a card but did
not use it to make new charges. On average, their median asset holdings are about
one-third to one-half as large as those of active card users without a balance.
Households who have a balance but at least sometimes pay their balance off
have asset levels a bit lower than those of card owners but non-users, indicating that
these households are able to accumulate financial assets. Households that hardly ever
pay the card balance off have notably lower wealth levels, with median wealth
averaging about half as large as for “sometimes” revolvers, and about one-fifth as
large as for those who use cards but do not carry a balance. In all survey years,
households without bank-type credit cards have the lowest amount of assets. The
decline in median net worth of these households between 1983 and 2001 reflects the
previously noted spread of card ownership to households with lower incomes.

Average interest rates, new charges, and expenses of revolvers

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Although low introductory or “teaser” interest rates of 1 to 5 percent can make
the interest costs of carrying a balance on a credit card credit negligible, Table 6
indicates that most habitual credit card revolvers pay relatively high rates of interest.
For the typical household who sometimes paid off the balance in full, the
median interest rate charged ranged from 13 to 14.8 percent, depending on the survey
year. For households that usually revolve debt, the typical interest rate was 15 to 16
percent, implying an annual interest rate cost of about $400, if the balance during the
survey month and new charges recorded are representative of the normal monthly
balance and charges. In 2001, less than 4 percent of frequent revolvers had interest
rates of 5 percent or less on the bank-type card with the largest balance; almost 19
percent faced interest rates above 20 percent.

Credit limits, utilization rates, and interest rates

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To some extent, higher card balances of college-educated and higher-income
credit revolvers reflects higher credit limits available to such households. Starting
with the 1995 survey, data were collected on the total bank-type card limit—that is,
the maximum amount that could be charged on the all bank-type credit cards owned
by the household—as well as on the interest rate charged on the card with the highest
balance (or the most frequently used card, if the balance on all cards was zero).
Table 6 indicates that credit limits are generally highest for households that
have demonstrated that they can handle credit card accounts responsibly, and not
necessarily those that have the greatest need to borrow. Credit limits tend to be
highest for those that carry no balance but actively use their cards, or that carry a
balance although they at least sometimes pay the balance in full. The median credit
limit for these households ranges from $10,000 to $15,000, depending on the survey
year. Households that either do not use their cards actively or usually revolve credit
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typically have credit limits of under $10,000 and often closer to $7,500. Credit limits
are typically larger for households aged between 35 and 64 than for households under
35, and are somewhat larger than for households over 65. Credit limits also tend to be
higher for households with higher levels of education and higher income. Table 6 also
indicates that between 1995 and 2001, the median card limit declined for younger
households, for those with less than high school education, and for those with incomes
below $10,000. Multiple factors are likely to have contributed to the decline in the
median card limit, but in part it may reflect the increase in card ownership by these
demographic groups. The typical lower-education or lower income household who
nonetheless qualified for a bank-type credit card in 1995 may have had a somewhat
higher credit rating than the typical such household in 2001.
Columns 8 and 12 show the median credit card utilization rates of households
that revolve credit, constructed as the balance remaining on the card after the last
payment plus any new charges made on the card over the current month, divided by
the available credit limit.12 Households who have a balance but at least sometimes pay
it off had a median card utilization rate of 15 percent in 1995; the utilization rate was
just under 20 percent in 1998 and then declined a bit to 17.5 percent in 2001.
Households that hardly ever pay off balances have considerably higher median
utilization rates of almost 40 percent in 1995 and about 50 percent in 1998 and 2001.
These higher utilization rates reflect both the higher card balances of this group as
well as the somewhat lower card limits these households face. Nearly one-tenth of
card holders and just under 20 percent of those who revolved credit in 2001 had a
credit card utilization rate of 75 percent or more. A similar percentage of card users
had high utilization rates in 1998, but only about half as many did in 1995. In all
survey waves, these households were more likely to be young and to have less than
college level education. Most high-utilization households “hardly ever” pay off their
card balance. More than half of high-utilization households (and over 70 percent of
young households) can be classified as “liquidity constrained,” compared with less
than 20 percent of households with lower utilization rates and 6 percent of card users
without an outstanding balance. Although the cross-section nature of the SCF
prevents us from investigating the relation between current high card utilization rates
and future default or bankruptcy filings—a topic we consider in more detail in Section
10—high-utilization households do appear more likely to exhibit indicators of
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financial difficulty: 18 percent of high-utilization households in 2001 indicated that in
the previous year they had been two months or more behind in any type of loan
payment, compared with only about 5 percent for all households.13

Credit card balances, utilization, interest rates

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7.1. Median amounts charged
Table 6 shows the median card balance of households who revolve credit, by
each survey year, and differentiating between households who claim to “almost
always” or “sometimes” pay off the balance each month from those who admit that
they “hardly ever” pay off the balance.11 Households who usually revolve credit tend,
not surprisingly, to have larger balances on their credit cards than do households who
indicate only occasional credit card revolving. The median amount of credit card debt
outstanding for occasional revolvers increased from about $700 in 1983 to over
$1,150 in 1995, but has since declined slightly, to about $1,000 in 2001. The median
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balance for credit revolvers has increased by more, and in recent years has been more
than twice as large: it has grown from $1,244 in 1983 to $3,260 in 1998 and $2,800 in
2001.
Credit card balances of households that are occasional revolvers show less
variation by age, education, and income than do the balances of households who
usually revolve credit. Among households who usually carry a balance, the median
credit card balance generally has been between $2,500 and $3,000 for households
aged less than 65, but only about $1,500 for older households. Although Table 1
indicates that a smaller percentage of card-holding households with college education
revolve credit card debt, those that do revolve their card debt tend to carry larger
balances than do households with less education. The median balance for college
educated usual revolvers has increased from about $3,000 in 1992 and 1995 to $4,775
in 1998 and $4,000 in 2001. By contrast, the median balance for a credit-revolving
household with high school education generally has been between $2,000 and $2,500.
Similarly, although a smaller percentage of higher-income households usually choose
to revolve credit than do lower-income households, those that do typically carry larger
balances than do households with lower incomes.

Repeated versus occasional credit revolvers

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Because the SCF is a cross section sample for each survey year and not a panel,
we cannot observe whether a card balance for a given household was a temporary
event or whether that household had carried a balance in the previous months.
However, we use self-reported information to help distinguish habitual revolvers from
those whose card balance is temporary or accidental. In each of the survey waves,
households with credit cards were asked whether they “always or almost always” paid
off the card balance in full each month, they “sometimes” paid it off in full, or
whether they “hardly ever” paid it off. The surveys also collect information on the
new charges made on the bank-type card after payment of the last bill. We use these
new charges data to get an idea of which households who do not carry a balance on
their credit cards appear to actively use their cards.10
Table 1 shows the percentages in each survey year of households who had a
bank-type credit card (column 2), those who had a card but had no balance on the card
and incurred no new charges in the current month (column 3), those who had no
balance but did incur new charges (column 4), and those who had a balance and
hardly ever paid off the balance (column 6; the complementary percentage had a
balance but claimed they usually or sometimes paid off the balance each month).
Bearing in mind the difference in how these variables are constructed in the 1983 and
later SCF waves, it nonetheless appears that the fraction of card holders who had a
card but did not actively use it has declined over time, from about 18 percent of cardholders in 1983 to 10 percent in 1992 and between 7 and 8 percent subsequently.
In all survey waves, the largest percentages of card-holder households who do
not use their cards are those who are over 65, have no more than a high school
education, and generally are those with incomes under $25,000. It is possible that
these households are passive cardholders who have been issued a card without
actively seeking one. Alternatively, they may be concerned about their ability to
control their spending, and prefer to consider the card for emergency use only.
Additional information available only from the 1998 and 2001 Surveys indicates that
households in this category were about twice as likely to have ever declared
bankruptcy as card-holders who did not carry a balance but did record active card use,
suggesting some role for concerns about over-spending and the social stigma of
delinquency and bankruptcy.
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A little less than 40 percent of card-holder households from the 1992-2001
waves had no outstanding balance on their credit card but did record new charges
during the month (column 4). For the 1983 SCF, a comparable figure is 30 percent of
cardholders who had no balance, but claimed they used their card “often” or
“sometimes.” These households appear to use their credit cards for ease of
transactions and perhaps to benefit from the float offered by deferring payment until
the credit card bill is due. According to the 2001 survey, 96 percent of these
households report that they “always or almost always” pay off their balance in full
each month. In all surveys, the percentages of card-holder households that fall into
this category are largest for older households and those with a college degree and at
least $100,000 in income: households that presumably have less need to borrow
especially at high rates of interest, which are likely to face less income variability, and
are more likely to have a sufficient buffer-stock of assets to tide them over income
fluctuations. In 1998 and 2001, these households were also the least likely to have
declared bankruptcy in the previous 10 years.
About a quarter of all card holders in 2001—and almost half of those who had
a balance outstanding on their card—admitted to “hardly ever” paying off the balance
each month (column 6). These fractions are relatively unchanged from earlier waves
of the SCF. For the most part, this percentage is not much affected by age, education,
or income, with the exception that households with incomes over $100,000 are less
likely to fall into this category. The fact that this behavior cuts across many
demographic and income groups suggests that frequent card revolvers may be
motivated by factors other than simply a “need to borrow.” One category of
households that does seem to have increased slightly over time is cardholders who
claim they “always or almost always” pay off the balance in full but nonetheless had a
balance outstanding at the time of the survey: that percentage has drifted upwards
from less than 10 percent of cardholders in 1992 (18 percent of those with a balance)
to 12 percent in 2001 (22 percent of those with a balance). These households may be
accidental revolvers who typically do pay off balances but for whatever reason carried
a balance in the month preceding the survey.
Table 5 explores the relation between the percentage of U.S. households who
have been denied credit by credit card ownership and card payment status. This
“liquidity constrained” information is taken from a series of questions asked in the
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SCF on whether the household, in the previous five years, had been turned down for
credit or had not received as much credit as requested (and had not received the full
credit amount on reapplying), or had not applied for credit because they thought they
would be turned down. Roughly one-third of households without a bank-type credit
card can be classified as “liquidity constrained” according to this definition.
Interestingly, as the fraction of households with at least one bank-type credit card has
grown, so has the fraction of these card-holder households that can be classified as
“liquidity constrained”: from 12 percent in 1983 to 17 percent in 2001.
For 1992-2001, we can further distinguish the type of credit for which the
household was turned down; roughly one-third of card holders apparently had
requested additional credit in the form of a credit card. Households with no balance on
their card but with new charges are the least likely to be credit constrained; only about
6 percent are so classified for any type of credit, and about 4 percent for credit other
than a credit card. Roughly one-third of the frequent credit card revolvers (those with
a balance who hardly ever pay it off in full) can be classified as “liquidity
constrained” but only one fifth identify the type of credit denied as other than for a
credit card. In other words, about 80 percent of frequent card revolvers do not claim
that they have been denied another form of credit. Although they do not appear to be
revolving credit card debt by default, they may have decided that switching to lower
cost forms of credit is too costly in terms of transactions or time costs, or they may be
unaware that other sources of credit, possibly at more attractive terms, are available.

Trends in debit card use

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In 2001, 38 percent of households without a credit card responded that buying
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things on an instalment plan was a “bad idea” compared with 27 percent of cardowner households. Although credit cards may lead to spending control problems,
debit cards— that is, cards that are linked to a specific account and when used, result
in funds being withdrawn immediately—can provide the same benefits of cashless
transactions with a form of self-control, as will be discussed below. Credit card
ownership has grown rapidly between 1983 and 2001, but debit card use has grown
even more rapidly and over a shorter time period. As of the 1992 SCF, less than 10
percent of U.S. households owned a debit card (Table 3, columns 2 and 6). By 1995,
one-third of households reported using a debit card, and by 2001 close to half reported
debit card use.7
As debit cards have become more widespread, households that use
debit cards but not credit cards appear increasingly willing to describe borrowing on
credit as a “bad idea”: in 1995, about 30 percent of households gave that response,
and this fraction was about the same across credit card owners, debit card users, and
non-card owners. By 2001, 40 percent of non-holders of credit cards who were debit
card users gave the “bad idea” response, compared with 27 percent of credit card
holders.
Table 4 presents results from a probit regression of the probability of debit
card use from the pooled sample of the 1992, 1995, 1998, and 2001 Surveys of
Consumer Finances.8
In contrast to the results on credit card ownership, younger
households are much more likely to use debit cards than are older households, as the
coefficient on households under age 35 is positive and significantly larger than that
for age 35-49, which in turn is also positive and significantly different from zero. This
result is likely to reflect the known tendency of banks to issue debit cards to younger
households who have not yet acquired the financial resources or established the credit
history needed for issuance of a credit card.
Higher education is associated with an increased likelihood of debit card use,
although households with a college degree are no more likely to use a debit card than
those with only some college. Households with higher incomes are also significantly
more likely to use debit cards, except for those with incomes over $100,000; these
households are actually slightly less likely to use debit cards than are households with
incomes between $50,000 and $99,999. Greater financial asset holdings are
associated with a small but significant effect on debit card use.
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Since education and financial resources tend to encourage provision of credit
cards by issuers, these findings do not arise from lack of access to credit cards. Rather,
they are likely to reflect a deliberate choice of more educated and well-to-do
households to benefit from the ease of using debit cards for payments, as compared to
using checks that are less widely acceptable. It is noteworthy that such tendency of
using debit cards is observed, despite the fact that use of credit cards for payments but
not for borrowing usually contributes extra benefits, such as points or floating
opportunities. We return to such issues below. Among other demographics,
particularly interesting is the finding that although nonwhite/Hispanic households are
significantly less likely than white households to have a credit card, they are no less
likely to use a debit card.
As with bank-type card ownership, the year dummies are significant, with
relative sizes and signs consistent with the spread in debit card use. Performing the
same calculations for various “typical” households as we did for credit cards
illustrates the adoption of debit cards over the 1990s particularly by younger
households, but also suggests that debit card use has not been universally or
exclusively adopted by households who also are very likely to have access to a banktype credit card. For the young, nonwhite, high-school educated female, the estimated
probability of having a debit card in 1992 is .22, less than the likelihood of having a
bank-type card in 1992. By 2001, the estimated probability of using a debit card
is .65, a sizable increase but still somewhat below that of having a bank-type card.
For the single white college-educated male, the estimated probability of using a debit
card is .21 in 1992 and increases to .64 in 2001, remaining well below the probability
of bank-type card ownership. For the 50-64 year old college-educated married
household, the probability of using a debit card rises from .12 in 1992 and reaches
only .50 in 2001.

Card ownership over time

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Our primary source of information on the spread of credit and debit card use
among U.S. households is from several waves of the Survey of Consumer Finances.
The SCF has been conducted triennially since 1983, and recent waves have each
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consisted of about 3,000 households drawn from a standard representative sample,
supplemented with about 1,500 high-wealth households selected on the basis of tax
records. Sample weights are provided to make the data representative of the U.S.
population as a whole. Each wave of the SCF provides detailed information on
household-level holdings of a variety of financial assets as well as sources, terms, and
uses of a wide range of consumer credit options, including credit cards. Data are also
collected on household characteristics including age, education, family structure, race,
and income. Finally, the SCF also asks a number of questions on attitudes towards
consumer borrowing, reasons for saving, and investment decisions.1
In 1983, 65 percent of U.S. households had a credit card of some kind,
including store-specific cards and gas cards (Table 1, column 1). Only 43 percent of
households had a bank-type credit card such as a Visa or Mastercard (column 2); that
is, a card that is accepted at a broad range of retail establishments, and after making a
minimum required payment allows the consumer to revolve the balance if so desired.
By 1992, 62 percent of the U.S. population had a bank-type credit card, and by 2001
that percentage had risen to almost 73. Over the same period, the percentage of
households with any type of credit card increased much less, and in 2001 that
percentage was 76 percent, only slightly higher than the percentage with a bank-type
card. There has also been an increase in the number of bank-type credit cards owned
per household: in 1983, households with a bank-type card typically held only one
such type card. By 2001, one-third of card-holding households still had only one
bank-type card, one-third had two, and about one-fourth had three or four. A little
more than 7 percent had five or more.
Opening of credit card accounts, either for the first time or as accounts in
addition to pre-existing ones, is much more common than other changes in household
portfolios (e.g., those associated with stockholding). Another source of data, the
January 2001 Consumer Survey on Credit Cards, shows that about 20 percent of
bank-type credit card holders had obtained one or more new accounts during the
previous year, and most of these were additional or replacement accounts. According
to the survey, 41 percent of holders held three or more bank-type credit card accounts
(Durkin, 2002). In the remainder of our discussion below, we focus our attention on
bank-type credit cards.