Credit Cards and the Poor

We use data from four releases of the Survey of Consumer Finances, 1983 to 1995, to examine credit card use among the poor. The credit card market has expanded rapidly in the general population and, given the often transitory nature of poverty, more and more families may be using credit cards rather than welfare or other means to smooth consumption across income shortfalls. Indeed, from 1983 to 1995, the percentage of poor families holding a credit card rose from less than 20 percent to almost 40 percent, and the average real balance on these cards rose from about $700 to more than $1,300. In 1983 the proportion of poor families with a credit card balance more than twice its monthly income was less than 1 in 30, but rose to 1 in 8 by 1995. The growth in debt represents a new and increasingly important development in the nature of poverty since the mid-1980s, and may soon create a need for administrative policy responses in the form of credit and debt management counseling for at-risk families. Among the research questions are raised are (1) Why has the credit card market expanded to include more economically vulnerable households? and (2) Is the new existence of easy credit temporarily softening the impact of welfare reform?