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Credit card debt not a sign of irresponsibility

Last month, asked, " Are you embarrassed by your credit card balances and credit score?" The question was prompted by a survey from the National Foundation for Credit Counseling that found three times more consumers being ashamed of their card balances than their weight. Now, think tank Demos has published a new study, "The Debt Disparity: What Drives Credit Card Debt in America," that suggests embarrassment is far from the apposite emotion for many of those who have to carry forward these balances every month. Resentment or even rage might be more appropriate.

'Responsible' credit card use

The Demos researchers selected two sample groups, each comprising about 1,000 working age, low- and middle-income households. In demographic terms, these two groups precisely mirrored each other, with the same mix of age, marital status, income, rate of homeownership, and race and ethnicity. The only difference was that members of one group routinely carried credit card debt while those in the other didn't.

The researchers then explored the backgrounds and financial experiences of all the experiment's participants, and reached a startling conclusion, as stated in the study's executive summary: "Contrary to popular belief, we find little evidence that households with credit card debt are less responsible in their spending habits than households that do not have accumulated debt."

Causes of credit card debt

Instead of uncovering profligacy as the cause of carrying card debt, it found that education was arguably the biggest factor, with those with college degrees 22 percent less likely to carry credit card debt than less-educated respondents. This won't be much of a surprise to regular readers, who may recall a recent report on this website quoting a 2008 Jump$tart survey: "The financial literacy of high school students has fallen to its lowest level ever," it said. However, at the same time, college students did much better in tests.

Financial experiences also played a huge part in determining the likelihood of respondents carrying credit card debt:
  1. Lacking medical insurance. If a member of the household had been without coverage in the previous three years, the chances of having card debt jumped 20 percent.
  2. Unemployment. If a member of the household had been unemployed for two months or more in the previous three years, those chances rose 14 percent.
  3. Savings. Those without card debt reported savings three times higher than those with.
  4. Underwater mortgages. Among homeowners, having negative equity increased the chances of rolling forward balances by a whopping 24 percent.

A further factor was the presence of children under 18 years in the household. Those that had them were 15 percent more likely to have card debt than those that didn't.

Another cause, another reason

By now, a large proportion of this article's readership will be hurling abuse at their screens, screaming: "Don't be stupid! Of course a huge amount of credit card debt is due to self-indulgence, poor self-control and a lack of moral fiber." And that's right: some of it almost certainly is.

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