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Credit cards: Facts and theories

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  • Bertaut, Carol C.
  • Haliassos, Michael

Abstract

We use data from several waves of the Survey of Consumer Finances to document credit and debit card ownership and use across US demographic groups. We then present recent theoretical and empirical contributions to the study of credit and debit card behavior. Utilization rates of credit lines and portfolios of card holders present several puzzles. Credit line increases initiated by banks lead households to restore previous utilization rates. High-interest credit card debt co-exists with substantial holdings of low-interest liquid assets and with accumulation of retirement assets. Although available evidence disputes ignorance of credit card terms by card holders, credit card rates do not respond to competition. There is a rising trend in bankruptcy and delinquency, partly attributable to an increased tendency of households to declare bankruptcy associated with reduced social stigma, ease of procedures, and financial incentives. Co-existence of credit card debt with retirement assets can be explained through self-control hyperbolic discounting. Strategic default motives contribute partly to observed co-existence of credit card debt with low-interest liquid assets. A framework of 'accountant-shopper' households, in which a rational accountant tries to control an impulsive shopper, seems consistent with both types of co-existence and with observed utilization of credit lines.

Suggested Citation

  • Bertaut, Carol C. & Haliassos, Michael, 2005. "Credit cards: Facts and theories," CFS Working Paper Series 2006/19, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200619
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    File URL: https://www.econstor.eu/bitstream/10419/25485/1/518560937.PDF
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    References listed on IDEAS

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    1. Hoch, Stephen J & Loewenstein, George F, 1991. " Time-Inconsistent Preferences and Consumer Self-Control," Journal of Consumer Research, Oxford University Press, vol. 17(4), pages 492-507, March.
    2. Thaler, Richard H & Shefrin, H M, 1981. "An Economic Theory of Self-Control," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 392-406, April.
    3. Dilip Soman & Amar Cheema, 2002. "The Effect of Credit on Spending Decisions: The Role of the Credit Limit and Credibility," Marketing Science, INFORMS, vol. 21(1), pages 32-53, September.
    4. David Laibson & Andrea Repetto & Jeremy Tobacman, 2000. "A Debt Puzzle," NBER Working Papers 7879, National Bureau of Economic Research, Inc.
    5. Ana M. Aizcorbe & Arthur B. Kennickell & Kevin B. Moore, 2003. "Recent changes in U.S. family finances: evidence from the 1998 and 2001 Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-32.
    6. 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.
    7. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    8. Lucia Dunn & TaeHyung Kim, 1999. "Empirical Investigation of Credit Card Default," Working Papers 99-13, Ohio State University, Department of Economics.
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    Cited by:

    1. 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.
    2. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
    3. repec:taf:applec:v:49:y:2017:i:1:p:21-32 is not listed on IDEAS

    More about this item

    Keywords

    Credit Cards; Debit Cards; Revolving Debt; Consumer Credit; Portfolios;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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