Survey: Recession Changed Consumer Credit Card Decisions
Jun 13th, 2012 @ 4:39 PM by Amber Nelson
The Great Recession led many U.S. consumers to shun credit cards and reduce their debt, according to a new survey from the Federal Reserve.
The Fed’s 2010 Survey of Consumer Finances found that between 2007 and 2010 the number of families carrying credit card balances fell as did the median amount of credit card debt that Americans held. In 2007, 39.4 percent of families said they had at least one credit card with a balance; in 2010 that percentage was down 6.7 percent. And among those who continued to hold onto credit card debt, the median amount fell 16.1 percent to $2,600 from $3,000 three years earlier.
“The decreased prevalence of credit card debt outstanding was widespread and noticeable across most of the demographic groups,” said the Federal Reserve.
The major exceptions, however, were older families, those headed by someone 75 years old or older, and families with minimal education, those headed by someone without a high school diploma. These two groups actually increased their dependence on credit cards during that time. This is presumably because these households had smaller incomes to deal with economic troubles during the Recession.
Consumers also cut back on the number of cards they held. In 2010, 32.7 percent of families had four or more credit cards, down from 35 percent in 2007. And roughly 0.5 percent of Americans got rid of all their credit cards.
Perhaps part of the reason consumers cut back so significantly on credit card use and debt was in response to their shrinking household wealth. Between 2007 and 2010, the median net worth for the American household plunged 38.8 percent, mostly because of lost equity from nose-diving home prices. Median incomes also fell during that time and the declines were
“most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions.”
Smaller incomes and decreased total household values certainly decreased consumers’ spending power and the uncertainty of the economy led many to buckle down, get rid of debt and start saving for more rainy days to come. Increased credit card spending will not be likely until Americans start at least feeling wealthier.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.