2016 No. 16–06

Research Data Reports

Do Consumers Rely More Heavily on Credit Cards While Unemployed? Do Consumers Rely More Heavily on Credit Cards While Unemployed?

By Allison Cole

Previous literature has shown that a consumer's payment preferences are correlated with his or her demographic profile and finances. Age, education, employment status, income, credit limits, asset holdings, and a variety of other factors can all contribute to a consumer's payment. Additionally, there is evidence that expectations about the future state of these factors can contribute to a consumer's use of available payment instruments. This report assesses how households change their use of credit cards during periods of unemployment.

This issue has important policy implications. The way individual households manage their finances during unemployment can affect their long-term financial health. Recently, credit card debt has begun to rise after having fallen by more than 25 percent from 2009 to 2014. Relying too heavily on credit cards without paying off credit card debt can increase consumers' debt and cause further deterioration in their financial situation. If credit card debt increases with unemployment, overall debt may increase as well. If, instead, consumers decrease credit card use when unemployed, their debt will likely be lower and they may be able to restore their normal consumption level sooner after returning to work. Thus, credit card behavior has implications for the overall health of the economy and is potentially useful to policymakers in their assessment of the economic outlook.

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