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Credit card debts of the poor: High and rising

Author

Listed:
  • Edward J. Bird

    (University of Rochester)

  • Paul A. Hagstrom

    (Department of Economics, Hamilton College)

  • Robert Wild

    (Department of Economics, Hamilton College)

  • Janet A. Weiss

    (School of Public Policy, University of Michigan, Ann Arbor, MI 48109-1220)

Abstract

In this article we report on a little-known aspect of the consumer credit explosion: It has also happened among the poor. Focusing on credit cards, we use data from four releases of the Survey of Consumer Finances (SCF), 1983-1995, to trace the evolution of the debt position of the poor as compared to that of the population at large. The data indicate that from 1983 to 1995 the fraction of poor households with a credit card more than doubled, and the average balances held on these cards rose almost as rapidly as the balances of nonpoor households. In 1983, fewer than 1 in 30 poor households had credit card debts greater than twice their monthly incomes; by 1995, more than 1 in 8 did. There is no strong evidence at the moment that the added debt has increased the financial distress of these households. Nonetheless, because of the debt increase, poor households at the end of the 1990s are more vulnerable to an economic downturn than they were at the end of the 1980s.© 1998 by the Association for Public Policy Analysis and Management

Suggested Citation

  • Edward J. Bird & Paul A. Hagstrom & Robert Wild & Janet A. Weiss, 1999. "Credit card debts of the poor: High and rising," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(1), pages 125-133.
    • Handle: RePEc:wly:jpamgt:v:18:y:1999:i:1:p:125-133
    DOI: 10.1002/(SICI)1520-6688(199924)18:1<125::AID-PAM8>3.0.CO;2-7
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    References listed on IDEAS

    as
    1. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
    2. Domowitz, Ian & Sartain, Robert L, 1999. "Incentives and Bankruptcy Chapter Choice: Evidence from the Reform Act of 1978," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 461-487, June.
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    Cited by:

    1. Nana Xu & Zhao Rong & Li Yu, 2024. "Credit cards and commercial insurance participation: Evidence from urban households in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 1159-1182, March.
    2. Lucy McMillan & Pinghui Wu, 2023. "Job Loss, Credit Card Loans, and the College-persistence Decision of US Working Students," Working Papers 23-19, Federal Reserve Bank of Boston.
    3. Ortiz, Jose M. & Teixeira, Lucas I. & Falcão, Natália N.L. & Soki, Erika A. & Almeida, Raquel M., 2024. "Information simplification and default choices improve financial decisions: A credit card statement experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 110(C).
    4. Pryor, Frederic L., 2007. "The anatomy of increasing inequality of U.S. family incomes," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(4), pages 595-618, August.
    5. Fenaba R. Addo & Xing Zhang, 2020. "Debt Concordance and Relationship Quality: A Couple-Level Analysis," Journal of Family and Economic Issues, Springer, vol. 41(3), pages 405-423, September.
    6. Igor Livshits & James C. Mac Gee & Michèle Tertilt, 2016. "The Democratization of Credit and the Rise in Consumer Bankruptcies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(4), pages 1673-1710.
    7. Christian Weller, 2009. "Credit Access, the Costs of Credit and Credit Market Discrimination," The Review of Black Political Economy, Springer;National Economic Association, vol. 36(1), pages 7-28, March.
    8. Andrew Carswell, 2009. "Does Housing Counseling Change Consumer Financial Behaviors? Evidence from Philadelphia," Journal of Family and Economic Issues, Springer, vol. 30(4), pages 339-356, December.
    9. Brennan, Linda & Zevallos, Zuleyka & Binney, Wayne, 2011. "Vulnerable consumers and debt: Can social marketing assist?," Australasian marketing journal, Elsevier, vol. 19(3), pages 203-211.
    10. Yunhee Chang & Angela Lyons, 2007. "Are Financial Education Programs Meeting the Needs of Financially Disadvantaged Consumers?," NFI Working Papers 2007-WP-02, Indiana State University, Scott College of Business, Networks Financial Institute.
    11. Zhan, Min & Sherraden, Michael, 2011. "Assets and liabilities, race/ethnicity, and children's college education," Children and Youth Services Review, Elsevier, vol. 33(11), pages 2168-2175.
    12. Patryk Babiarz & Richard Widdows & Tansel Yilmazer, 2013. "Borrowing To Cope With Adverse Health Events: Liquidity Constraints, Insurance Coverage, And Unsecured Debt," Health Economics, John Wiley & Sons, Ltd., vol. 22(10), pages 1177-1198, October.
    13. Smeeding, Timothy M. & Phillips, Katherin Ross & O’Connor, Michael, 2000. "The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 1187-1210, December.
    14. Joanna Stavins, 2000. "Credit card borrowing, delinquency, and personal bankruptcy," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 15-30.
    15. Lawrence M. Berger & Jason N. Houle, 2019. "Rising Household Debt and Children’s Socioemotional Well-being Trajectories," Demography, Springer;Population Association of America (PAA), vol. 56(4), pages 1273-1301, August.
    16. Kyle Dempsey & Felicia Ionescu, 2021. "Lending Standards and Borrowing Premia in Unsecured Credit Markets," Finance and Economics Discussion Series 2021-039, Board of Governors of the Federal Reserve System (U.S.).
    17. Timothy M. Smeeding & Katherin Ross Phillips & Michael O'Connor, 1999. "The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility," Center for Policy Research Working Papers 13, Center for Policy Research, Maxwell School, Syracuse University.
    18. Smeeding, Timothy M. & Phillips, Katherin Ross & O’Connor, Michael, 2000. "The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1187-210, December.
    19. Grinstein-Weiss, Michal & Spader, Jonathan & Yeo, Yeong Hun & Taylor, Andréa & Books Freeze, Elizabeth, 2011. "Parental transfer of financial knowledge and later credit outcomes among low- and moderate-income homeowners," Children and Youth Services Review, Elsevier, vol. 33(1), pages 78-85, January.
    20. James X. Sullivan, 2008. "Borrowing During Unemployment: Unsecured Debt as a Safety Net," Journal of Human Resources, University of Wisconsin Press, vol. 43(2), pages 383-412.
    21. Edward Castronova & Paul Hagstrom, 2004. "The Demand for Credit Cards: Evidence from the Survey of Consumer Finances," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 304-318, April.
    22. Christian Weller, 2010. "Have Differences in Credit Access Diminished in an Era of Financial Market Deregulation?," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 1-34.
    23. Colin Campbell & Maude Pugliese, 2022. "Credit Cards and the Receipt of Financial Assistance from Friends and Family," Journal of Family and Economic Issues, Springer, vol. 43(1), pages 153-168, March.
    24. Katie Fitzpatrick, 2015. "The effect of bank account ownership on credit and consumption: Evidence from the UK," Southern Economic Journal, John Wiley & Sons, vol. 82(1), pages 55-80, July.
    25. Heather Boushey & Christian E. Weller, 2006. "Inequality and Household Economic Hardship in the United States of America," Working Papers 18, United Nations, Department of Economics and Social Affairs.

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