Do Consumers Rely More Heavily on Credit Cards While Unemployed?

Leading up to the Great Recession, households increased their credit card debt by over 16 percent ($121 billion) during the five-year period from 2004 to 2009. The unemployment rate simultaneously began to rise in 2008, increasing from 5.0 percent in January 2008 to a high of 10.0 percent in October of 2009. During the recovery, from 2009 to 2014, credit card debt fell by more than 25 percent, as the unemployment rate returned to near prerecession levels. These coincident developments have led to speculation that consumers facing unemployment or job uncertainty may have increased their reliance on credit cards. Using panel data from the Survey of Consumer Payment Choice (SCPC), we analyze consumers’ adoption and use of credit cards, along with other payment instruments, among consumers during periods of unemployment. We compare this behavior with that of their employed peers, and we track the same people over time to test whether credit card behavior changes with employment status. Using descriptive statistics and regression analysis, we find the following: 1) Respondents who were unemployed at some point during the sample period are demographically distinct from the average respondent: they are significantly younger, have lower incomes, are less likely to be married, and are less likely to be white; 2) Respondents who were unemployed at some point during the sample period adopted a different set of payment instruments than the average respondent: they were significantly less likely to have had a bank account and significantly less likely to have had a credit card; 3) Respondents who were unemployed at some point during the sample period had a significantly lower share of credit card payments as a percentage of overall payments, meaning they used credit cards less intensively than the average respondent; 4) There is some evidence that respondents decrease their credit card use during a period of unemployment. Thus, we do not find evidence that consumers increase their reliance on credit cards during spells of unemployment. On the contrary, the SCPC data indicate that consumers may, in fact, decrease their reliance on credit cards while unemployed.