Trends in debit card use


In 2001, 38 percent of households without a credit card responded that buying
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in funds being withdrawn immediately—can provide the same benefits of cashless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
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.
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.


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