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Credit Cards and the Poor

  • E. J. Bird
  • P. A. Hagstrom
  • R. Wild
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    We use data from four releases of the Survey of Consumer Finances, 1983 to 1995, to examine credit card use among the poor. The credit card market has expanded rapidly in the general population and, given the often transitory nature of poverty, more and more families may be using credit cards rather than welfare or other means to smooth consumption across income shortfalls. Indeed, from 1983 to 1995, the percentage of poor families holding a credit card rose from less than 20 percent to almost 40 percent, and the average real balance on these cards rose from about $700 to more than $1,300. In 1983 the proportion of poor families with a credit card balance more than twice its monthly income was less than 1 in 30, but rose to 1 in 8 by 1995. The growth in debt represents a new and increasingly important development in the nature of poverty since the mid-1980s, and may soon create a need for administrative policy responses in the form of credit and debt management counseling for at-risk families. Among the research questions are raised are (1) Why has the credit card market expanded to include more economically vulnerable households? and (2) Is the new existence of easy credit temporarily softening the impact of welfare reform?

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    File URL: http://www.irp.wisc.edu/publications/dps/pdfs/dp114897.pdf
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    Paper provided by University of Wisconsin Institute for Research on Poverty in its series Institute for Research on Poverty Discussion Papers with number 1148-97.

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    Handle: RePEc:wop:wispod:1148-97
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    1. Christopher D. Carroll & Andrew A. Samwick, 1993. "How important is precautionary saving?," Working Paper Series / Economic Activity Section 145, Board of Governors of the Federal Reserve System (U.S.).
    2. Glenn B. Canner & Arthur B. Kennickell & Charles A. Luckett, 1995. "Household sector borrowing and the burden of debt," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 323-338.
    3. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
    4. Paul S. Calem & Loretta J. Mester, . "Consumer Behavior and the Stickiness of CreditCard Interest Rates," Rodney L. White Center for Financial Research Working Papers 3-94, Wharton School Rodney L. White Center for Financial Research.
    5. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
    6. Wolff, Edward N, 1992. "Changing Inequality of Wealth," American Economic Review, American Economic Association, vol. 82(2), pages 552-58, May.
    7. Edward J. Bird, 1996. "Repairing the safety net: Is the EITC the right patch?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 1-31.
    8. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
    9. Ruggles, Patricia & Williams, Roberton, 1989. "Longitudinal Measures of Poverty: Accounting for Income and Assets over Time," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 35(3), pages 225-43, September.
    10. Glenn B. Canner & Charles A. Luckett, 1992. "Developments in the pricing of credit card services," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 652-666.
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