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The Demand for Credit Cards: Evidence from the Survey of Consumer Finances

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  • Edward Castronova
  • Paul Hagstrom

Abstract

We analyze data from the Survey of Consumer Finances estimate the response of credit card demand to standard price and income effects. We model credit card demand as a two-stage process, with consumers obtaining limits in the first stage and then borrowing some fraction of those limits in the second. We estimate this model with a nested tobit procedure. We also treat the demand for limits as one equation in a two-equation supply-demand model. We estimate this model with simple 2SLS, instrumenting for the price variable, the interest rate. The results of the first model suggest that most of the action in the market is in the demand for limits, not the demand for balances. (JEL D1, G0) Copyright 2004, Oxford University Press.

Suggested Citation

  • Edward Castronova & Paul Hagstrom, 2004. "The Demand for Credit Cards: Evidence from the Survey of Consumer Finances," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 304-318, April.
    • Handle: RePEc:oup:ecinqu:v:42:y:2004:i:2:p:304-318
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    2. Berg, Nathan & Kim, Jeong-Yoo, 2010. "Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption," MPRA Paper 26593, University Library of Munich, Germany.
    3. Devinaga Rasiah, 2013. "The Flexible Alternative Consumer Financing in Malaysia: Credit Cards," Journal of Social and Development Sciences, AMH International, vol. 4(3), pages 147-151.
    4. Shubhasis Dey & Gene Mumy, 2005. "Determinants of Borrowing Limits on Credit Cards," Staff Working Papers 05-7, Bank of Canada.
    5. Joanna Stavins, 2020. "Credit Card Debt and Consumer Payment Choice: What Can We Learn from Credit Bureau Data?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 58(1), pages 59-90, August.
    6. Yunker, James A. & Melkumian, Alla A., 2010. "The effect of capital wealth on optimal diversification: Evidence from the Survey of Consumer Finances," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 90-98, February.
    7. Alessandra Amendola & Alfonso Pellecchia & Luca Sensini, 2016. "Factors Driving the Credit Card Ownership in Italy," International Business Research, Canadian Center of Science and Education, vol. 9(6), pages 131-142, June.
    8. Ryan R. Brady, 2011. "Consumer Credit, Liquidity, And The Transmission Mechanism Of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 246-263, January.
    9. Junfei Bai & Thomas I. Wahl & Jill J. McCluskey, 2008. "Fluid milk consumption in urban Qingdao, China ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(2), pages 133-147, June.
    10. Cliff A. Robb, 2016. "Considerations of Credit Card Markets from the Shariah Perspective اعتبارات أسواق بطاقات الائتمان من وجهة نظر الشريعة," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 29(1), pages 89-94, January.
    11. Irina Grafova, 2007. "Your Money or Your Life: Managing Health, Managing Money," Journal of Family and Economic Issues, Springer, vol. 28(2), pages 285-303, June.
    12. Pablo Cotler & Rodrigo Carrillo, 2018. "El Mercado de Préstamos Prendarios en México: Quién lo usa, cuánto cuesta y qué tanta competencia hay," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 13(2), pages 247-272, Abril-Jun.
    13. Giuseppe Albanese & Guido de Blasio & Paolo Sestito, 2013. "Trust and preferences: evidence from survey data," Temi di discussione (Economic working papers) 911, Bank of Italy, Economic Research and International Relations Area.
    14. Ryan R. Brady, 2006. "Credit Cards and Monetary Policy: Are Households still liquidity-constrained?," Departmental Working Papers 12, United States Naval Academy Department of Economics.
    15. Basnet, Hem C. & Donou-Adonsou, Ficawoyi, 2016. "Internet, consumer spending, and credit card balance: Evidence from US consumers," Review of Financial Economics, Elsevier, vol. 30(C), pages 11-22.
    16. Jae Min Lee & Narang Park & Wookjae Heo, 2019. "Importance of Subjective Financial Knowledge and Perceived Credit Score in Payday Loan Use," IJFS, MDPI, vol. 7(3), pages 1-21, September.
    17. Edward C. Lawrence & Gregory Elliehausen, 2008. "A Comparative Analysis Of Payday Loan Customers," Contemporary Economic Policy, Western Economic Association International, vol. 26(2), pages 299-316, April.
    18. Hem C. Basnet & Ficawoyi Donou‐Adonsou, 2016. "Internet, consumer spending, and credit card balance: Evidence from US consumers," Review of Financial Economics, John Wiley & Sons, vol. 30(1), pages 11-22, September.
    19. Massimiliano Affinito & Raffaele Santioni & Luca Tomassetti, 2023. "Inside household debt: disentangling mortgages and consumer credit, and household and bank factors. Evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 788, Bank of Italy, Economic Research and International Relations Area.
    20. Thomas Bishop & Cheolbeom Park, 2010. "Borrowing Constraints, the Marginal Propensity to Consume, and the Effectiveness of Fiscal Policy," Discussion Paper Series 1008, Institute of Economic Research, Korea University.

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    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • G0 - Financial Economics - - General

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