Average american credit card debt

Credit cards have become a noticeable feature on most American households' financial landscape. Data from the Bank for International Settlements indicate that the number of credit cards in circulation increased 34 percent between 1988 and 1994, and the number of credit card transactions increased 55 percent. The data also show that the value of credit card transactions increased 98 percent during the same period. The higher number of cards and their use increased the size of credit card debt, so that total consumer revolving credit outstanding grew from $175 billion to $339 billion.

Unfortunately, aggregate data like those above fail to provide information about the composition of credit card debt growth. So it is impossible to tell whether the increased debt arose from a general increase in the number of households or from a larger proportion of households with credit cards. Aggregate data also do not reveal who holds credit card balances - upper- or lower-income households - nor do they indicate which factor contributed more to the growth of credit card debt - an increase in the number of households with credit cards or an increase in average credit card indebtedness. Such detailed information about the components of credit card debt growth is important because each component has different implications for the viability of the growth of credit card debt.

Household data provide some of the information we need to examine the different strata of credit card debt. I use the Surveys of Consumer Finances conducted in 1983, 1989, and 1992 to separate the growth of credit card debt into two categories: Changes in the number of households with credit cards and changes in the amount of credit card debt per household. I can then account for the relative contributions of increases in credit card availability, number of households, and average credit card debt. I also use the household income information to quantify the impact of the increasing number of lower-income households with credit cards.

SURVEY OF CONSUMER FINANCES

The Federal Reserve, with the assistance of other agencies and organizations, conducted the Surveys of Consumer Finances (SCF) in 1983, 1989, and 1992 to obtain detailed information about households' assets, liabilities, income, and use of financial institutions and instruments such as credit cards.(1) Each survey used a random sample of U.S. households with an over-sample of high-income and high-wealth households to obtain a detailed, comprehensive, and representative picture of U.S. households. Oversampling is necessary because income and wealth are concentrated among a small number of households, so a random sample of the population misses too many dollars.(2) The surveys included 4,103 households in 1983, 3,143 households in 1989, and 3,906 households in 1992, but I do not use information for six households in the 1992 survey because of data problems.(3) Antoniewicz (1996) and Avery, et al. (1988) found that the information in the survey corresponds fairly closely to the findings of other surveys and aggregate estimates.(4)

Unlike Avery, et al. (1987) and Canner, et al. (1995), who presented detailed information about household indebtedness, I limit myself to examining the relationship between household income and credit cards because income provides the wherewithal to repay debt, and because credit card issuers appear to focus on household income in their credit card applications.

I split the households into income deciles to examine the relationship between household income and credit cards. Parsing households in such a manner creates ranges that are invariant to economic trends that affect the overall economy, so changes in household income that are attributable to inflation or real economic growth do not affect the position of households within the deciles. Separating by deciles also creates partitions that represent 10 percent of all households, thereby eliminating excessive concentration of households within any particular range. Table 1 (p. 9) shows the ranges for the income deciles and the number of households within each decile for the three surveys.(5) Some income categories, especially the highest ones, may have more observations than others because the surveys used a stratified sampling scheme with an oversample of the high-income and high-wealth households.

WHO HAS CREDIT CARDS?

The increasing number of households that have credit cards undoubtedly contributed to higher total credit card balances, because some of the new cardholders undoubtedly accumulated credit card debt. So it is important to know how the fraction of households with credit cards changed between 1983 and 1989 and between 1989 and 1992. In addition, average credit card indebtedness and the ability to service such debt are likely to vary with income, so we may want to know how the incidence of credit card holders changed for different income deciles, and whether changing incidences affected the characteristics of a typical credit card-holding household.

A majority of American households had some type of credit card in 1983, as shown in Table 2 (p. 10).(6) In that year, nearly two-thirds of all households - including many low-income households - had some type of credit card. Nearly one-third of all households in the lowest three income deciles had credit cards.

The surveys reveal three broad patterns. First, the likelihood of a household's having a credit card varies with income: Lower-income households are less likely to have credit cards, and the likelihood of having a credit card increases nearly uniformly with household income. In 1983, a family in the highest income decile was five times as likely to have credit cards than one in the lowest decile. In between, the fraction of households with credit cards within each income group increased as income increased, and in all instances but one, the differences appear to be statistically significant.(7) The 1989 and 1992 SCFs also show patterns of increasing probability of credit card ownership with income.

Second, the surveys indicate that the fraction of households with credit cards increased over time. By 1989, 70 percent of all households had at least one credit card, and by 1992, the figure had risen to 72 percent. The increases in the proportion of the population with credit cards between 1983 and 1989, as well as between 1989 and 1992, appear to be statistically significant. In addition, the increased credit card ownership rates affected all income groups, although credit card ownership rates among the top half of the income distribution stabilized between 1989 and 1992.

Finally, although all income groups were more likely to own credit cards, lower-income households increased their card ownership rates more than higher-income families. Credit card ownership rates for the bottom half of the income distribution increased from 45 percent in 1983 to 50 percent in 1989 and to 54 percent in 1992, whereas the top half increased from 86 percent in 1983 to 91 percent in 1989, and then dropped to 90 percent in 1992. The income distribution of households with credit cards also shows the increasing importance of lower-income households among all credit card holders; the increases in credit card ownership rates shifted the distribution of households with credit cards toward lower-income households, shown in Figure 1. Three percent of households with credit cards had incomes within the first decile in 1983, and nearly the same proportion of credit card-holding households fell in the first decile in 1989. By 1992, however, 3.5 percent of all credit card-holding households had income within the first decile.

The increasing incidence of credit cards among lower-income households flattened the distribution of households with credit cards between the survey years, indicating more uniform access to credit cards. The fraction of households with credit cards in the top three income deciles was smaller in 1983 than in 1989, while a larger fraction of such households had income between the 10th and 60th percentiles. The distribution of credit card holders continued to shift so that, by 1992, households with income under the 40th percentile accounted for an even larger share of all households with credit cards than in 1983 and 1989.

WHO HOLDS CREDIT CARD BALANCES?

Average credit card debt is the other important factor in determining changes in total household credit card debt. So how has average credit card debt changed over time? Do low-income households carry large balances, and do high-income families use their cards for convenience, paying off their balances in full?