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Credit Cards, Credit Utilization, and Consumption

Author

Listed:
  • Scott Fulford

    (Consumer Financial Protection Bureau)

  • Scott Schuh

    (West Virginia University)

Abstract

Credit bureau data show remarkably stable consumer utilization of unsecured debt over the business cycle, life cycle, and individually quarter-to-quarter, despite massive variation in available credit. To explain these new findings, we propose a life-cycle consumption model with heterogeneous preferences, endogenous payment choice, and the option to revolve debt for consumption smoothing. Using diary data to identify payment use, the estimated model matches consumption and credit use at every frequency and suggests that around half the population has an endogenously high marginal propensity to consume. The results suggest understanding credit availability and heterogeneous use may lead to richer counter-cyclical policies.

Suggested Citation

  • Scott Fulford & Scott Schuh, 2020. "Credit Cards, Credit Utilization, and Consumption," Working Papers 19-07, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:19-07
    as

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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1038&context=econ_working-papers
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit cards; life cycle; consumption; saving; precaution; buffer-stock; payments;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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