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Borrowers’ Remorse: U.S. Credit Card Debt

Categories : Cash ensures competition among payment instruments, Cash facilitates budgetary control, Cash is efficient, Costs of cash versus costs of electronic payment instruments
February 6, 2023
Tags : Card payments, Costs of payments, Digital payments, Financial inclusion, US
U.S. credit card debt rose at its highest rate since 1999 in the third trimester of 2022. Most of the increase occurred amid younger and less wealthy cardholders.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Credit card debt is the most prevalent in the United States. According to the Federal Reserve Bank of New York (FRBNY), there are more than 500 million open credit card accounts; 191 million Americans have at least one credit card account, and many have multiple accounts.

According to Credit Karma, a credit score tracking company, U.S. cardholders’ average credit card balance is up 20%. Credit scores had fallen 12 points since March 2022, when the Federal Reserve first started raising interest rates.

Rising Credit Card Use during the Cost-of-Living Crisis

U.S. credit card balances reached $930 billion during the third trimester of 2022, per the most recent FRBNY Quarterly Report on Household Debt and Credit.

Graph 1. United States: Year-Over-Year Percent Change in Credit Card Balances, 2004-2022

Source: FRBNY (2022).

Credit Card Use by Age and Income

The Report provides data shedding light on how younger and less wealthy cardholders are using credit cards to deal with the cost-of-living crisis. FRBNY researchers analyzed credit card balances by borrower’s age (see Graph 2) and zip code income (see Graph 3).

Graph 2. United States: Average Credit Card Balances by Age Group in Nominal U.S. Dollars, 2004-2022

Source: FRBNY (2022).

Graph 3. United States: Average Credit Card Balances by Zip Code-Income in Nominal U.S. Dollars, 2004-2022

Source: FRBNY (2022).

Targeting Young Adults through Live Concerts

Credit cards are the most common first credit experience for younger borrowers: 73% of Americans have a credit card by age 25, per the FRBNY. Many U.S. young adults are getting their first credit cards lured to see their favorite artists in concert.

Successful artists are partnering with credit card companies to offer fans preferential access to presale tickets, such as Taylor Swift with Capital One and the Coachella Valley Music and Arts Festival with American Express premium cards,

Adding Friction to Credit Cards for Mindful Spending

“Whenever you make a purchase that’s unplanned, lots of things can happen. It takes away some of your choices in the future. […] Removing the emotions and the impulses can be very helpful.” – Jamie Wagner, associate professor of economics at the University of Nebraska Omaha.

“Retailers, both online and in brick and mortar, are really skilled. They make an Olympic sport out of making you want to buy things you don’t need,” said Justin Pritchard, the owner of Approach Financial Planning (a retirement planning firm in Montrose, Colorado). Pritchard had some suggestions to avoid impulse purchases with credit cards, including:

Some Gen Z consumers stay away from their credit cards and resort to #Cashstuffing to better manage their budgets. “Cash envelope stuffing” has been trending on Tik Tok with over 426 million views at the time of writing.

This post is also available in: Spanish