Hardly a day goes by that I don't hear pundits and media
folk worrying about how overleveraged consumers are with debt including credit
card debt. Thus, these people, argue, expect only a muted economic recovery.
A new study of Americans use of credit cards covering the
period from 1989 through 2007 by the non-profit and non-partisan American
Institute for Economic Research (AIER) provides some revealing insights as to
the true nature of American's credit card burdens.
"Data show that the majority of Americans are not struggling
with persistent credit card debt," said AIER Economist and Research Fellow, Polina
Vlasenko, Ph.D. Vlasenko's review found the following:
In 2007 (the most recent year covered by the survey), 27
percent of U.S.
families did not own a single credit or charge card.
Among families with credit cards, the median number of
cards in 2007 was two, the same it has been since 1989. This harkens back to my
review of Newsweek's Fareed Zakaria's cover article in which he made numerous
erroneous statements including, "The average household owns 13 credit
cards..."
The percentage of families carrying balances on their
credit cards has increased over time, but has increased at a much slower pace
than access to credit cards. From 1989 to 2007, the percentage of families
having credit cards increased at nearly three times the rate as the percentage
of families carrying balances on their cards (red line in graph below) which
has increased just a few percentage points over the past two decades. (I must point out here that I have never been an advocate for carrying credit card debt of any amount but in a moment we'll get to the point about the level of credit card debt folks are carrying.)
Of the 73 percent of U.S. families possessing credit
cards, 42 percent had no balance after paying their most recent bill. Only 25
percent of all credit-card holders "hardly ever pay off the balance." This
means that less than one family in five (25 percent of the 73 percent possessing
credit cards) routinely carries a credit card balance.
The median credit card balance in 2007, among those
families carrying balances, was $3,000.
"The recession has supposedly led to increases in family
savings, major efforts by families to reduce debt, and other belt-tightening
measures, so the figures given in the Fed consumer-finance survey probably even
exaggerate the extent of the current credit problem" said Vlasenko.
In summary, Vlasenko says, "As is often the case, the
reality is often less extreme and dire than we are led to believe. Sure, some
families and individuals are drowning in credit card debt. And some misuse
their credit cards. But the vast majority of Americans appear to manage their
credit wisely."