Fed survey: Recession shrank card debt, crushed household wealth
The majority of consumers responded to the recession
by shedding cards and paying off their credit card debt, according to data
released Monday by the Federal Reserve.
The number of families carrying a balance on their
credit cards fell substantially between 2007 and 2010, according to the 2010 Survey
of Consumer Finances, a triennial look at Americans' income, net worth and debt.
The Fed's 2007 report was published in 2009; data from 2010 was released Monday. According to the survey, 39.4
percent of families said they had at least one credit card with a balance on
it, down 6.7 percent from 2007.
"The decreased prevalence of credit card debt
outstanding was widespread and noticeable across most of the demographic
groups," said the Federal Reserve. However, not all groups shed their reliance
on credit cards. According to the survey, families headed by someone age 75 or
older were more likely to carry credit card debt in 2010 than in 2007.
Meanwhile, families headed by someone without a high school diploma also relied
on credit cards more heavily after the recession.
Based on 6,492 interviews with U.S. consumers, the Fed's Survey of Consumer Finances is among the most widely accepted, accurate snapshots available of Americans' finances. The
survey is only released every three years. As a result, this is the first
in-depth survey Fed survey that looks at how Americans have used credit since the Great Recession
struck in mid-2007.
The survey also shed light on just how devastating
the recession was to households' balance sheets. American household's median
net worth fell a whopping 38.8 percent between 2007 and 2010, according to the
survey, thanks largely to the collapse in value of many people's homes.
Meanwhile, median incomes fell for most consumers, with the steepest drops in
income sustained by highly educated families, families headed by someone
younger than 55 and families living in the South and the West.
"Families' finances are affected by both their own decisions and the state of the broader economy," the report stated. "Over the 2007-2010 period, the U.S. economy experienced its most substantial downturn since the Great Depression."
card debt fell sharply
After the recession, consumers significantly changed how they used their
credit cards, according to the survey. For example:
A significant number of consumers
stopped carrying a balance on their credit cards. This behavior was most
pronounced among consumers with middle and high incomes and among educated consumers
middle-aged or younger.
Credit card debt fell. Among households carrying credit card debt, the median amount dropped 16.1 percent, from $3,000 to $2,600. The mean amount slipped 7.8 percent, from $7,300
to $7,100. The term median signifies half were above the number, half below. The mean is the mathematical average. When the mean and median are significantly different, it's because the data points aren't clustered in the middle. In other words, there are a lot of people who owe a lot of money on their credit cards, skewing the average high.
The number of cards that families held
also dropped. For example, 32.7 percent of families held
four or more cards in 2010, compared to 35 percent of families in 2007. Fewer
families also reported holding three or more cards and a fraction even stopped
carrying two or more cards. Approximately half a percent dropped their cards
The number of people with store and
gasoline credit cards dropped substantially as well. However, the number of people carrying charge
cards for travel or entertainment purposes -- which don't allow you to carry a balance -- increased.
The survey also breaks
down the way people from different walks of life use credit. For example, those who borrowed less on their cards following the recession included families
with higher incomes, single families, families without children and families headed
by someone working in a managerial, professional, technical or sales-type jobs.
Those that continued to rely on cards, in turn, were more likely to be single
families with children and families in the lowest income bracket.
Families in the South,
the Midwest and large metropolitan areas were more likely to carry debt. Families in
the Northeast were the least likely.
families are more likely to carry debt than people with just a high school
diploma or who dropped out of high school. However, high school dropouts became
more likely to carry debt after the recession than before 2007.
Similarly, retirees are
less likely to carry debt than other consumers.
However, significantly more people of retirement age carried a balance in 2010 than they did in
2007. That could be because retirees often live on a fixed income and many retirees saw their fixed incomes decline as a result of the recession, says Tony Plath, a professor of finance at the University of North Carolina at Charlotte.
The same can also be said for consumers without a high school diploma, he adds. They are "the group with the highest rate of unemployment, and thus most likely to be living on some form of government assistance (like unemployment checks)," Plath wrote in an email. "Since these sources of income are significantly lower than traditional household income for both groups, households are supplementing their monthly income with rising credit card debt in order to pay the bills."
The next survey of consumer finances will be
released in 2015 and will look at how Americans' finances have fared between
2010 and 2013.
See related: Fed study puts average credit card balances at $7,300 in '07, Fed: consumer credit demand up, even as debt falls
Published: June 11, 2012