Credit Card Debt: The American Way

The results of a study released on Tuesday by Oregon State University suggest that credit card debt has become the norm, or as one participant said, “the American way.” According to the study, Americans spent 9.3% of their income servicing debt in 2008. In 2010, 24% of American homeowners had upside-down mortgages, owing more than the homes were worth. Racking up debt is rampant among America’s youth, who apparently think having poor credit is better than having no credit at all for future purchases, such as financing a home or buying a car.

The Case Study

The study was conducted by Michelle Barnhart of OSU and Lisa Peñaloza of Ecole des Hautes Etudes Commerciales du Nord of France. The researchers were interested in exploring personal and cultural attitudes on debt in the United States that could have contributed to the economic recession. The study took place in 2006 and included in-depth interviews with 27 white, middle-class Americans. Barnhart felt that much of the previous research related to pre-recession behavior and attitudes had focused solely on ethnic and low-income minorities.

The Findings

The researchers found that younger participants are acquiring credit cards at a much younger age than those over 50 did, yet many said they acquired a credit card based on the advice of their parents, who saw credit as a “safety mechanism.” But for many, the credit was anything but safe — half of the participants said they had debts they could not pay, and a third of them were dealing with collection agencies.

Many young people said they did not a credit card but felt they had to have one in order to build a credit history to qualify for bigger purchases, and because consumers are often penalized for not using credit cards. One of the few participants who didn’t have a credit card said that she was unable to purchase a cell phone for this reason and that it had created awkward situations in the past, such as during business travel. But for many young people, having a credit card only seems to encourage more debt rather than building up credit responsibly – in a way that will actually be beneficial in the long-run.

The Future of Debt

The researchers make a valid point through this study that economic classes should be offered, or even mandatory, in high schools to teach students how to manage personal finances and credit cards before they get into debt. This seems like an especially good idea considering that most participants said they learned about credit cards only through personal experience.

Barnhart said she would like to study how the economic crisis has changed attitudes about debt. It’s a good bet that it has. In February, total revolving debt held by U.S. consumers fell to its lowest level since September 2004. And studies of earlier recessions have shown that young people walk away from tough times with a more conservative attitude about money that can last for the rest of their lives.

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.