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Age, sex, race, education and credit cards

by Peter Andrew
Age, sex, race, education and credit cards

Rugged individualism. It’s part of our national ethos, and we all like to believe that we make our own choices and determine our own destinies. But in reality, most of us are products of our environments: we tend to act similarly to those who are like us. Does this truism (if you accept that it is one) apply to how we pay for our purchases?

Credit card use is a product of age…

Some evidence for correlation, if not causation, can be found in a Fed study published at the end of 2011 about how people pay for things. Whether you reach into your Hermès diamond birkin handbag (one sold at auction last year for $203,150), or the plastic knock-off bag you bought from a shady character at a swap meet, or the wallet in your suit pocket, you probably believe that you’re about to make a rational decision about how you’re going to pay for your purchase. But the chances are good that you’re going to make the same choice as other people of your age and background.

Take age first. According to the Fed survey, fully 100 percent of respondents over 35 years old use cash at least once a year. But only 90 percent of under-25s do. It’s similar with checks. Everyone (literally, 100 percent of respondents) 65 or older reported using checks on occasion, but only 84 percent of those aged 25 to 34, and only 80 percent of under-25s.

But, for a more dramatic age-related progression, check out who uses credit cards:

  • Under 25 years: 56 percent
  • 25-34: 68 percent
  • 35-44: 81 percent
  • 45-54: 81 percent
  • 55-64: 84 percent
  • 65 or over: 95 percent

… and much more

And age isn’t the only dramatic progression when it comes to your propensity to use credit cards. Others include:

  • Education: high school or less 66 percent; post-graduate school 98 percent
  • Income: under $25,000 p.a. 48 percent; over $100,000 96 percent
  • Net worth:under $50,000 59 percent; over $500,000 92 percent

In other words, the higher your educational achievements, the higher your income, the higher your net worth, the more likely you are to use credit cards. Actually, that’s not quite accurate. Ninety-four percent of those with a net worth of between $250,000 and $500,000 use credit cards for some purchases, while a mere 92 percent of those with a net worth of over $0.5 million do so. Perhaps some of the latter have their butlers write checks.

Race also evidently plays a part in influencing credit card use. Here’s the Fed’s data for card usage by those criteria:

  • Asian: 100 percent
  • White: 83 percent
  • Latino: 82 percent
  • American Indian: 69 percent
  • Other: 55 percent
  • Black: 50 percent

And sex? Credit cards are used by 81 percent of men, but only 75 percent of women, according to the Fed.

Dated data

One problem with the Fed’s report is that much of it is based on data derived from a 2008 survey. And we all know that people’s attitudes to — and use of — credit cards have changed markedly since then. Once the credit crunch really hit, a whole lot of consumers chose (almost regardless of the demographic groups to which they belonged) to forgo using their credit cards.

Moreover, since 2008, large numbers of consumers found their credit lines closed or dramatically (there’s that word again) curtailed, either because they defaulted or because their credit card companies “proactively” cut them off. You might think it reasonable to assume that those who suddenly found themselves cardless were likely to have lower educational attainments, lower incomes and lower net worths than average. If that’s the case, then credit card use should now be even more skewed towards the more educated and prosperous.

Credit cards make a comeback

That was then; this is now. In a Jan. 24 press release, Javelin Strategy & Research, a company that specializes in studying financial services, explained one of the reasons credit cards are making a comeback:

For years, banks and merchants have actively encouraged debit card use, and 73 percent of consumers report that they are satisfied with the debit card option. Now, debit card issuers are facing a combined $12.2 billion loss due to revenue-pinching regulations. On the one hand, many FIs [financial institutions] are reacting by steering consumers toward more profitable credit cards. On the other hand, most merchants will benefit from Durbin-driven reductions in interchange fees and are encouraging debit card use. However, small-ticket merchants have seen their costs for debit acceptance rise significantly, and these merchants often encourage the use of cash or other payment options rather than more costly debit cards. As a result, consumers are facing a bewildering onslaught of mixed messages about which payment option to use.

Those messages may be mixed, but consumers seem to be making their own ways back to credit cards. The February edition of The Nilson Report said that, in 2011:

  1. Total credit card debt (“outstandings” in the jargon) grew for the first time since 2008.
  2. Spending on credit cards rose by 9.5 percent to $2.14 trillion.
  3. The number of credit cards in circulation increased by 4.1 million.

That last point is especially interesting because those new cards aren’t always going to the people you might expect. On Feb. 22, TransUnion, one of the big-three credit bureaus, revealed that last year more than one in four new card accounts went to non-prime borrowers. And you might think that they’re less likely than average to be rich and highly educated.

So does that mean that using plastic is set to become less elitist? Probably not. While credit requirements appear to be loosening, the banks may yet prove bright enough (though the jury’s still out on that) to resist the sort of indiscriminate lending that led to the credit crunch.

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