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Credit Cards: Use and Consumer Attitudes,1970–2000Thomas A. Durkin, of the Board’s Division ofResearch and Statistics, prepared this article. NicolePrice provided research assistance.A notable change in consumer financial services overthe past few decades has been the growth of the useof credit cards, both for payments and as sources ofrevolving credit. From modest origins in the 1950sas a convenient way for the relatively well-to-do tosettle restaurant and department store purchases without carrying cash, credit cards have become a ubiquitous financial product held by households in all economic strata.In modern commerce, credit cards (along withdebit cards) serve as a payment device in lieu of cashor checks for millions of routine purchases as well asfor many transactions that would otherwise be inconvenient, or perhaps impossible (for example, makingretail purchases by telephone or over the Internet).Credit cards have also become the primary source ofunsecured open-end revolving credit, and they havelargely replaced the installment-purchase plans thatwere important to the sales volume at many retailstores in earlier decades.Along with most major societal changes comequestions about whether the trend is beneficial ordetrimental (or somewhere in between), and the riseof plastic cards for payments and open-end creditis no exception. Credit cards certainly are widelyused and accepted by the public. But they have alsoraised concerns in two areas: (1) whether consumersfully understand the costs and implications of usingcredit cards (the consumer information–consumerunderstanding concern) and (2) whether credit cardshave encouraged widespread overindebtedness,particularly among those least able to pay (theindebtedness–financial distress concern). The twoissues are related, because one result of lack of understanding may be overindebtedness. Both issuesremain prominent in public discourse, as debt andpersonal bankruptcy levels have increased over thedecades and media reports of confused consumershave multiplied.Although one can usually find anecdotes to illustrate a point—consumers who are unaware of thecosts of credit cards, for instance, or consumers whooverspend because of the wide availability of credit—such examples can never lead to a definitive understanding of issues having broad social or economicimpact. Statistically representative surveys can contribute to a more complete understanding of consumers’ experiences. Taken together, such surveys canserve as a status report on the use of credit cardssome fifty years after their introduction. This articlebrings to the discussion some survey evidence onthe use of credit cards in the United States. It beginswith an examination of long-term trends in consumerindebtedness, with attention to the growth of cardbased credit. It then moves to an exploration ofthe consumer information–consumer understandingissue, with emphasis on consumers’ attitudes towardcredit cards and their knowledge of costs.CREDIT CARDS AND INDEBTEDNESSThe Federal Reserve Board collects data on amountsof consumer credit outstanding, including amounts ofrevolving consumer credit, most of which is generated by credit cards.1 Total (nonmortgage) consumercredit outstanding increased from 119 billion atyear-end 1968 to 1,456 billion in June 2000 (incurrent dollars, not seasonally adjusted), while therevolving component grew from 2 billion to about 626 billion over the same period. Because population, income, employment, prices, and nearly everyother economic indicator also rose over the period,the growth of consumer credit is often put in perspective by comparing it with the growth of consumers’income.Total (nonmortgage) consumer credit outstanding(revolving and nonrevolving forms combined) has1. Consumer credit covers most short- and intermediate-term creditextended to individuals. It includes revolving credit (credit card creditand balances outstanding on unsecured revolving lines of credit) andnonrevolving credit (such as secured and unsecured credit for automobiles, mobile homes, trailers, durable goods, vacations, and otherpurposes). Consumer credit excludes loans secured by real estate(such as mortgage loans, home equity loans, and home equity lines ofcredit).
6241.Federal Reserve BulletinSeptember 2000Consumer credit outstanding as a proportion of disposablepersonal income, 1956–99PercentTotal consumer credit2015Consumer nonrevolving credit10Consumer revolving credit1959196719751983519911999Source. Federal Reserve Board and Bureau of Economic Analysis.grown at approximately the same pace as disposablepersonal income over the past generation, althoughwith noticeably more cyclicality. Since the mid1960s, total consumer credit outstanding relative tothis measure of income has fluctuated in a relativelynarrow range of about 16 percent to 17 percent during or following recession periods to about 18 percent to 21 percent near business-cycle highpoints(chart 1).The revolving component of consumer credit hasincreased relative to income over the most recentthree decades, and the nonrevolving component hasdecreased relative to income. Thus, the revolvingcomponent’s share has been growing relative to thenonrevolving component’s share, reflecting consumerpreference and technological change; many consumers seem to like the convenience associated withprearranged lines of credit, and technological developments have made it much easier for creditors tooffer this data-intensive product. A substantial portion of the new revolving credit probably has merelyreplaced credit generated by the installment-purchaseplans that were common at appliance, furniture, andother durable goods stores in the past. And some ofthe new credit is in the form of ‘‘convenience credit’’on credit cards—amounts that will be paid in fullupon receipt of the monthly statement. (Installmentpurchase plans have no equivalent ‘‘convenience’’component.)Card Holding among FamiliesDollar amounts of credit card credit outstanding canbe estimated from information provided by creditors,but only surveys of consumers can provide informa-tion about the users and uses of credit cards. For thisreason, each Survey of Consumer Finances since1970 has included questions on the holding and useof credit cards (the 1967 and 1968 surveys alsoincluded a few questions about credit cards).2These surveys show that in 1998 almost threefourths of American families had one or more creditcards, up from about one-half of a smaller populationin 1970 (table 1). Among credit cards, the generalpurpose cards that have a revolving feature, referredto in this article as ‘‘bank-type’’ credit cards, showthe most notable increase over the period.3 In theearly 1970s, limited-use cards issued by retail firms,usable only in the firm’s stores, were the most commonly held type of credit card; bank-type cards weremuch less common. By 1995, however, the holdingof bank-type cards was more common than the holding of retail store cards.The holding of bank-type credit cards has continued to grow in recent years, whereas the holding ofretail store cards peaked about a decade ago and hasfallen off since then. In fact, bank-type cards issuedunder the Visa and MasterCard brands are so widelyheld and used today that it is difficult to imagine thatthey were not especially common only three decadesago. Known at that time as BankAmericard and Master Charge, respectively, and issued only by commercial banking organizations, they were a new productin the mid-1960s and by 1970 together had reachedonly about one-sixth of families; the other majorbank-type cards widely available today, Discover andOptima, were not even on the drawing boards at thattime. By 1998, bank-type cards (including Discoverand Optima) were in the hands of about two-thirds offamilies. In three decades, the general-purpose cardwith a revolving feature has become the most widelyheld credit device.Consumers use credit cards for two main purposes:as a substitute for cash and checks when makingpurchases and as a source of revolving credit. In1970, just over one-fifth of all families owed a balance on a credit card after making their most recentcard payment (table 1). By 1998, the fraction was justover two-fifths. Most of the increase was due to the2. The Survey of Consumer Finances series is sponsored by theFederal Reserve Board, sometimes jointly with other agencies. The1977 survey in this series was titled the 1977 Consumer Credit Surveybut is referred to in this article as the 1977 Survey of ConsumerFinances because it is part of the same series. For a general description of results from recent surveys, see Arthur B. Kennickell, MarthaStarr-McCluer, and Brian J. Surette, ‘‘Recent Changes in U.S. FamilyFinances: Results from the 1998 Survey of Consumer Finances,’’Federal Reserve Bulletin, vol. 86 (January 2000), pp. 1–29.3. ‘‘Travel and entertainment’’ cards such as American Expressand Diners Club are not included here as ‘‘bank-type’’ cards becausethey do not offer a revolving feature.
Credit Cards: Use and Consumer Attitudes, 1970–20001.625Prevalence of credit cards among U.S. families, selected years, 1970–98PercentItem197019771983198919951998Have a cardAny card 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Retail store card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bank-type card 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5145 216635438655843706156745866735068Have a card with a balance after the most recent paymentAny card 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Retail store card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bank-type card 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . moFamilies having any card with an outstanding balanceafter the most recent payment as a proportion of allfamilies having cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Families having a bank-type card with an outstanding balanceafter the most recent payment as a proportion of allfamilies having bank-type cards . . . . . . . . . . . . . . . . . . . . . . . . . . .Proportion of families having a bank-type card who hardlyever pay revolving card balances in full . . . . . . . . . . . . . . . . . . .374451525655. . .1825262827Note. In 1970, families were asked about using credit cards; in all otheryears, they were asked about having cards.1. Includes cards issued by banks, gasoline companies, retail stores andchains, travel and entertainment card companies (for example, AmericanExpress and Diners Club), and miscellaneous issuers (for example, car rentaland airline companies).2. Data are for 1971.3. A bank-type card is a general-purpose credit card with a revolving feature;includes BankAmericard, Choice, Discover, MasterCard, Master Charge,Optima, and Visa, depending on year. . . Not available.Source. Surveys of Consumer Finances.growing popularity of bank-type cards as devices forgenerating revolving credit. In 1970, only 6 percentof families had a bank-type card with an outstandingbalance after their most recent payment. The proportion rose steadily until 1995 and then leveled off at37 percent. In contrast, the proportion of familiesreporting an outstanding balance on a retail store cardpeaked in 1983 at 29 percent, and in 1998, at 19 percent, it was only a bit higher than the 15 percentrecorded in 1970. Of those families that had banktype cards, 37 percent had revolved a balance in themonth before the 1970 survey, compared with 55 percent in the month before the 1998 survey. In 1977,18 percent of holders of bank-type cards reported thatthey hardly ever paid their revolving accounts in full,a proportion that rose to 25 percent in 1983 and hasremained at about that level since then.increased over the three decades, as did the mean andmedian revolving credit balances (in constant dollars). Despite some shifts within the period, the sharesof total revolving balances on these cards accountedfor by each income group has not changed dramatically over the decades, perhaps contrary to popularimpressions. For example, despite a sharp increase incard holding by the lowest income group, the group’sshare of total revolving debt on bank-type cards roseonly to 5 percent in 1998, up from 2 percent in 1970but still not a large proportion of the total. Thehighest income group accounted for 30 percent ofrevolving debt on bank-type cards in 1970, a sharethat over the three decades fell off only a bit, to29 percent in 1998.The expanded availability of card-based credit,especially to lower-income consumers, has raisedconcerns that issuers have taken on more credit riskand that instances of financial distress may increasesharply at some point. Data on the proportion ofdollars of revolving credit delinquent thirty days ormore, available from Call Reports submitted by commercial banks since 1991, indicate an upward trendfrom 1994 to 1996 and a leveling after that (chart 2).This pattern is similar to that for delinquencies onclosed-end (nonrevolving) consumer credit extendedby banks, much of which is secured credit associatedwith the purchase of automobiles. Data on the proportion of consumers (rather than dollars) delinquent,assembled by the Credit Research Center (Georgetown University) from a random sample of consumercredit reports maintained by a national credit reporting agency, show that at year-end 1999, 3.4 percentDistribution of Bank-Type Credit CardsData from the Surveys of Consumer Finances indicate that the holding of general-purpose credit cardswith a revolving feature has become more widespread among households at all income levels. Forfamilies in the lowest income group, 2 percent had abank-type credit card in 1970, compared with 28 percent in 1998 (table 2). For those in the highestincome group, the holding of bank-type cards almosttripled between 1970 and 1995—from 33 percent to95 percent.For each income group, the percentage of cardholders carrying a balance on bank-type cards also
6262.Federal Reserve BulletinSeptember 2000Prevalence of bank-type credit cards and outstanding balance amounts, by family income quintiles,selected years, 1970–98Percent except as notedIncome quintile197019771983198919951998LowestHave a card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Carrying a balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mean balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .Median balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . .Share of total revolving balance . . . . . . . . . . . . . . . . . 2,386995628592,2407005Second lowestHave a card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Carrying a balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mean balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .Median balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . .Share of total revolving balance . . . . . . . . . . . . . . . . . 854572,6221,6051458583,0281,40013MiddleHave a card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Carrying a balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mean balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .Median balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . .Share of total revolving balance . . . . . . . . . . . . . . . . . 2622171582,9521,6052172584,1291,90023Second highestHave a card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Carrying a balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mean balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .Median balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . .Share of total revolving balance . . . . . . . . . . . . . . . . . 1,1833083602,6871,6052386604,3342,00029HighestHave a card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Carrying a balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mean balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .Median balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . .Share of total revolving balance . . . . . . . . . . . . . . . . . 6304095504,4602,2463695455,2322,50029All familiesHave a card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Carrying a balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mean balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .Median balance (dollars) . . . . . . . . . . . . . . . . . . . . . . . . .Share of total revolving balance . . . . . . . . . . . . . . . . . 41,31510066563,1601,60510068554,0731,900100Note. In 1970, families were asked about using cards; in all other years, theywere asked about having cards. Proportions that ‘‘have a card’’ are percentages of families; proportions ‘‘carrying a balance’’ are percentages of holders ofbank-type cards with an outstanding balance after the most recent payment.Mean and median balances are for cardholders with outstanding balances afterthe most recent payment and are in 1998 dollars, adjusted using the ConsumerPrice Index for All Urban Consumers, all items. Shares may not sum to100 percent because of rounding.Source. Surveys of Consumer Finances.of consumers were thirty days delinquent on at leastone bank-type card account (not shown in chart).This source also shows that more serious delinquency(overdue ninety days or more) has remained at orslightly below 1 percent of holders of active banktype card accounts over the past decade.4nity Act, for example) or mandatory disclosures (theTruth in Lending Act, for example). The disclosurerequirements have in large part been intended to helpprevent or mitigate overextension and other difficulties resulting from a lack of understanding of creditterms and the consequences of using credit. Generalpurpose household surveys can help in assessing theeffects of these laws. Unfortunately, the specifics ofmany individual consumer’s credit-related difficulties do not lend themselves to such broad-basedsurveys. Surveying currently delinquent debtors, forexample, is difficult with a broad survey becausedelinquency is relatively rare; large numbers of interviews must be completed to yield enough casesto analyze an uncommon phenomenon with precision. General-purpose surveys can, however, characterize consumers’ overall impressions of their cardusing experiences and their views on conditionsin the marketplace, including the availability ofinformation.CONSUMER INFORMATION ANDCONSUMER UNDERSTANDINGBeginning with the Truth in Lending Act (enacted in1968 as Title I of the Consumer Credit ProtectionAct, effective July 1, 1969), much federal legislationregulating consumer credit has concerned either mandatory fairness procedures (the Equal Credit Opportu4. See Credit Research Center (McDonough School of Business,Georgetown University, Washington, D.C.), Monthly Statements, various issues.
Credit Cards: Use and Consumer Attitudes, 1970–20002.Consumer credit delinquency rates, 1991–99Percent5Revolving credit 143Nonrevolving credit 22Bank-type credit card holders 319911992199319941995199611997199819991. Percentage of revolving credit (dollars) delinquent thirty days or more.2. Percentage of nonrevolving credit (dollars) delinquent thirty days or more.3. Percentage of holders of active bank-type credit card accounts delinquentninety days or more on one or more bank-type cards.Source. For revolving and nonrevolving credit, Call Reports submitted bycommercial banks. For bank-type credit card holders, Credit Research Center,Monthly Statements, various issues (based on data from a sample of consumercredit reports).Consumers’ Attitudes toward Credit CardsTo explore consumers’ attitudes toward and understanding of credit cards, as well as to gather information about card use, the Credit Research Center inJanuary 2000 sponsored interviews of nearly 500households representative of households in the fortyeight contiguous states. Interviewing was done by theSurvey Research Center of the University of Michigan as part of its monthly Surveys of Consumers.General AttitudesRespondents—both those who used credit cards andthose who did not—were first asked their broad feelings about credit cards. So that attitude changes couldbe tracked over time, the question was identical to the3.627question asked in nationwide Surveys of ConsumerFinances in 1970 and again in 1977: ‘‘People havedifferent opinions about credit cards. Overall, wouldyou say that using credit cards is a good thing or abad thing?’’Overall opinions about credit cards are somewhatmore negative and polarized in 2000 than they were ageneration ago, especially among holders of banktype cards (table 3). Opinions among all families thatcredit card use is ‘‘good’’ register a bit higher in 2000(33 percent) than in 1970 (28 percent) but a bit lowerthan in 1977 (39 percent). The view that card use is‘‘bad’’ is stronger in 2000 than in either of the earlieryears.In all three surveys, views among holders of banktype cards were more favorable than those among thepopulation generally. Nonetheless, unfavorable viewsamong cardholders have increased over the decades;negative attitudes among cardholders are much morecommon in 2000 (42 percent) than they were in 1977(14 percent). This finding is interesting because carduse is also much greater in 2000. In 2000, holders ofbank-type cards are about equally divided in theiropinions that credit card use is good or bad, muchdifferent from 1977, when a considerably larger proportion had a favorable opinion.5Consumers’ opinions about credit cards also varydepending on their use of and experience with cards.Less enthusiastic viewpoints are somewhat morecommon among those who use credit cards as creditdevices rather than primarily as substitutes for cash5. Interestingly, contrary opinions about consumer credit, evenfrom the same person, apparently have been around much longer thanthese surveys. Referring to the paradox of dichotomous views as the‘‘Victorian money-management ethic,’’ a cultural historian recentlypointed out that the simultaneous belief that credit is good but debt isbad is actually at least as old as American history. See Lendol Calder,Financing the American Dream: A Cultural History of ConsumerCredit (Princeton, N.J.: Princeton University Press, 1999).Opinions about the use of credit cards, selected yearsPercent1970Opinion19772000All familiesBank-typecard usersAll familiesBank-typecard holdersAll familiesBank-typecard holdersGood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .284539543342Good, with qualification . . . . . . . . . . . .13171920109Both good and bad . . . . . . . . . . . . . . . . .121411865Bad, with qualification . . . . . . . . . . . . . .444311Bad . . . . . . . . . . . . . .
1. Consumer credit covers most short- and intermediate-term credit extended to individuals. It includes revolving credit (credit card credit and balances outstanding on unsecured revolving lines of credit) and nonrevolving credit (such as secured and unsecured credit for auto-mobiles, mobile homes, trailers, durable goods, vacations, and other .
