It’s impossible to look at the graph of credit card use over the last few years without a roller coaster coming to mind.

Credit card use in context

The idea of a roller coaster became irresistible when your blogger looked at an April survey published by the Federal Reserve Bank of Boston. A full version of the report was released this week.

The bank’s report examined 2009 consumer payment methods, and compared them to 2008. It showed volatile trends in credit card use, and underscored how vulnerable credit card companies are to changes in the economy. Consumers became averse to credit cards during the early stages of The Great Recession, and drops in credit card use are the kind you might expect on a roller coaster. Of course, as Tuesday’s blog (Fantastic plastic! Credit cards come storming back) showed, things are already back on the upswing. Without the Federal Bank of Boston report, it might be easy to forget the extent to which consumers became averse to credit cards when the Great Recession first hit.

Credit card trends in dark times

Here are six of the report’s key findings for 2009, with a focus on those relating to credit card trends:

1. On average, consumers had five payment instruments in 2009, down from 5.1 in 2008.
2. In a typical month, consumers used 3.8 payment instruments in 2009, down from 4.2 in 2008.
3. The proportion of consumers with credit cards dropped to 72.2 percent in 2009, down from 78.3 percent in 2008.
4. Of the average 64.5 payments consumers made monthly in 2009, only 11.2 were made using credit cards – a 22 percent reduction from 2008.
5. In 2009, debit cards accounted for 19 monthly payments, cash 18.4 (up 27 percent from the previous year), checks 8.2 and electronic payments made up almost all of the remainder of monthly payments.
6. Prepaid cards were held by 32.3 percent of consumers, and non-bank payment accounts such as Google Checkout or PayPal were held by 30 percent of consumers in 2009.

Credit card debt scary

The Fed explained some of these trends:

“Several factors likely played a role in the shift of consumer payments back toward cash and related instruments. Weaker economic conditions probably encouraged a shift away from credit card payments, for both supply and demand reasons, and perhaps toward cash because it helps some consumers cut costs and improve budgeting. However, changes in government regulations toward credit and debit cards and bank pricing of payment card services during 2008-2009 may have contributed as well.”

Somewhere buried in there is the explanation that most appeals to your blogger: everyone was spooked by the credit crunch. Credit card companies withdrew cards and cut back limits. Consumers realized that, for most, job security was an illusion, and that they faced an urgent need to get their personal finances in order. Credit card debt was among the scariest issues they wanted to address.

All this seems to be beginning to change as consumer confidence recovers, along with much of the economy. Today, many may even be using their credit cards to pay for roller-coaster rides.

Published 05/27/11