Could Americans Not Realize How Much They Owe?

Apparently, many Americans are completely out of touch with the reality of how much money they owe.

A new study released by the New York Federal Reserve Bank shows that at least a third of households underreport their credit card debt by an average amount of $2,000, when compared with lenders’ overall reports. Credit card companies also reported being owed money by 76% of households. Meanwhile, only 50% of households reported carrying any credit card debt.

Although the Fed’s own Survey of Consumer Finances is considered to be a trustworthy, authoritative source of data, the recently-discovered household debt inaccuracies challenge the report’s validity. When the debt levels reported by survey participants were compared against the debt amounts that lenders reported to the credit bureau Equifax, it was discovered that consumers had accurately reported the amount of debt they had in terms of student loans and mortgages, but they were inaccurately reporting the amount of their credit card debt. The inaccuracies were, in fact, quite large—borrowers only professed to owing around 50 cents on every dollar’s worth of debt that was reported by the credit card companies.

“Household surveys are the source of some of the most widely studied data on consumer balance sheets, with the Survey of Consumer Finances (SCF) generally cited as the leading source of wealth data for the United States. At the same time, recent research questions the survey respondents’ propensity and ability to report debt characteristics accurately,” stated the report, according to The Wall Street Journal.

Even taking into account adjustments made in the calculations of the report to compensate for certain inaccuracies, the fact remains that the average household reports $4,700 worth of credit card debt, while lenders are reporting an average balance of $7,134 in the same debt per household.

While embarrassment could partially explain the underreporting, the report states that, “Despite the credit card debt mismatch, bankruptcy history is reported comparably in the borrower and lender sources, indicating that not all stigmatized consumer behaviors are underreported,” according to The Wall Street Journal.

The unfamiliarity of different members in a single household have with each other’s personal financial situation is another potential explanation. However, simple ignorance seems to be the only plausible explanation for the sheer magnitude of the discrepancy. It would seem that Americans are simply not aware of how much credit card debt they owe.

“Uninformedness could result from willful ignorance, as large credit card balances are not welcome information, from difficulty understanding the growth of credit card balances,” states the report, according to zimguardian.com.

It seems that, at least as far as credit cards are concerned, Americans that need to own up to what they owe.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.