No Credit Card, No Bank Account

As stores across the nation experiment with going cashless, they are shutting their doors on a significant share of the population—those without credit cards or bank accounts. Overall, 19 percent of adults (and their spouses) do not have a credit card and 6 percent do not have a bank account, according to a Federal Reserve Board survey. The share without credit cards or bank accounts is much higher in some demographic segments...

Percent without a credit card
39% of those with household incomes below $40,000
31% of those with no more than a high school diploma
32% of Blacks
28% of Hispanics

Percent without a bank account
14% of those with household income below $40,000
13% of those with no more than a high school diploma
14% of Blacks
11% of Hispanics

Source: Federal Reserve Board, Report on the Economic Well-Being of U.S. Households in 2018 

44% of Americans Are "Revolvers"

How many Americans carry a credit card balance, and how much do they owe? The answers can be found in a study by economist Joanna Stavins of the Federal Reserve Bank of Boston. She wanted to determine the unique characteristics of credit card users and in particular those who are "revolvers" — meaning they owe a balance on their credit cards.

Stavins examined findings from the Survey of Consumer Payment Choice, comparing revolvers' self-reports of their credit card balances with the Equifax credit bureau records of individual respondents. One of her goals was to determine the accuracy of self-reported balances, and she discovered they aren't all that accurate. Self-reported credit card balances are significantly lower than the balances reported by Equifax. Overall, 44 percent of adults in 2015–16 were revolvers (carrying a credit card balance). The average balance on the credit cards of revolvers was $6,597—25 percent greater than what respondents self-reported. Here are the percentages of Americans who are credit card revolvers by age, and their average credit card balance based on Equifax records...

Credit card revolvers by age, 2015–16 (and Equifax credit card balance)
Total adults: 44% ($6,597)
Under age 25: 26% ($2,913)
Aged 25 to 34: 44% ($4,472)
Aged 35 to 44: 49% ($7,192)
Aged 45 to 54: 51% ($8,336)
Aged 55 to 64: 48% ($7,493)
Aged 65-plus: 35% ($6,261)

Actual credit card balances are higher than self-reported balances in every age group. The biggest difference is among people aged 65 or older, who report an average balance of $3,795 while Equifax data show an average balance of $6,261.

Source: Federal Reserve Bank of Boston, Credit Card Debt and Consumer Payment Choice: What Can We Learn from Credit Bureau Data?

Are Young Borrowers Bad Borrowers?

The notion that young borrowers are bad borrowers is tested in a study by the Federal Reserve Bank of Richmond. Using data on young adults who obtained credit cards after passage of the 2009 Credit Card Accountability and Responsibility and Disclosure (CARD) Act, the researchers examined the default rates of those who made the effort to obtain credit cards early. The Act made it illegal to issue credit cards to people under age 21 unless they had a cosigner.

Those who self-select into getting credit cards before age 21 are (perhaps not surprisingly) less likely to default than older adults and those who enter the credit card market at an older age. Interestingly, the young adults who opted for an early credit card were also more likely to get a mortgage at a younger age. "The relation between mortgages and early credit card use indicates that young people may choose to enter the credit card market to build a strong credit history to later access homeownership," say the researchers. They conclude: "The results caution against interpreting early entry into the credit card market as a consequence of suboptimal or myopic behavior."

Source: Federal Reserve Bank of Richmond, Are Young Borrowers Bad Borrowers? Evidence from the Credit CARD Act of 2009

Household Debt: 2011 Update

One of the most significant findings that emerges from the Census Bureau's 2011 update of household debt is this: American households hit a financial wall during the 2000s, and we are still reeling from the impact.

Fewer households are in debt. The percentage of households with debt fell from 74 percent in 2000 to 69 percent in 2011.

Median debt is declining. In 2011, median household debt was $70,000. Although this was far above the $50,971 median of 2000, it was less than the $74,619 peak of 2010, after adjusting for inflation.

Credit card debt has plunged. The percentage of households with credit card debt fell from 51 to 38 percent between 2000 and 2011. The median amount owed by those with credit card debt climbed slightly, rising from $3,353 to $3,500.

"Other" debt is a growing problem. Unfortunately the Census Bureau's statistics do not break down "other" debt to reveal its components--student loans, medical debt, and money owed to individuals. The percentage of households with "other" debt climbed from 10.7 percent in 2000 to 18.6 percent in 2011. By age, the percentage of households with "other" debt looks like this...

Under age 35: 31.3%
Aged 35 to 44: 22.9%
Aged 45 to 54: 20.5%
Aged 55 to 64: 15.0%
Aged 65 or older: 5.4%

For those with "other" debt, the median amount owed more than doubled between 2000 and 2011, after adjusting for inflation, rising from $4,024 to $10,000.

Source: Census Bureau, Wealth and Asset Ownership, 2000 to 2011

No Credit Cards

More than one in four Americans aged 18 or older does not have a credit card, according to a survey by AARP. Younger adults are more than twice as likely to be without credit cards than adults aged 50 or older. Here are the percentages who do not have a credit card by age...

Total adults: 26%
Aged 18-49: 34%
Aged 50-plus: 16%

Source: AARP Bulletin Survey on Budgeting and Credit Card Use

Debt of the Foreclosed

According to a study by the Federal Reserve Board, individuals who have had foreclosure proceedings begin against them had the following characteristics...

Average age: 42
Median credit score: 562

Median mortgage balance: $152,901

Median credit card balance: $3,498

Median auto loan balance: $15,728

Source: Federal Reserve Board, The Post-Foreclosure Experience of U.S. Households, Raven Molloy and Hui Shan, 2011-32

Most Pay Credit Cards in Full

The 54% majority of Americans say they always pay their credit cards in full each month. Here are the numbers by age...

18 to 29: 51%
30 to 44: 45%
45 to 59: 44%
60-plus: 75%

Source: Americans' Financial Capability, NBER Working Paper 17103, $5

How Much Cash is in Your Pocket?

You have only $34 in your pocket, purse, or wallet right now--if you are typical. That is the median amount of cash carried by the average American, according to a recently published Federal Reserve Bank of Boston paper analyzing results of the 2009 Survey of Consumer Payment Choice (yes, there really is such a thing).

You make 64.5 payments during a typical month (including everything from buying groceries to paying your credit card bill). You make 29 percent of those payments with a debit card, 28 percent with cash, 17 percent with a credit card, 13 percent with a check, and 5 percent with online bill payments. Money orders and bank account number payments account for most of the remainder.

During a year's time, 77 percent of Americans access their bank account by going into a bank, 69 percent use an ATM, 61 percent use online banking, 32 percent use telephone banking, and 9 percent use mobile banking services on their cell phone.

This Is Where Your Customers Went

Any business wondering where the customers went can find out by taking a look at the Federal Reserve Board's new estimates of household debt. Millions of households, it turns out, are carrying the baggage of education loans, preventing them from buying homes, cars, furniture, going to restaurants, or taking vacations.

In 2009, a substantial 18 percent of households in the United States had education loans. This was up from 16 percent in 2007. By age, the percentage of households with student debt extends well into middle age. Take a look:

Under age 35:  37%
Aged 35 to 44: 20%
Aged 45 to 54: 18%
Aged 55 to 64: 10%

These loans are not trifling either. The size of student loans exceeds vehicle loans and far surpasses credit card debt. For households with student debt, the median amount owed was $15,000 in 2009, up from $12,400 in 2007 (in 2009 dollars)--a 21 percent increase in two years. For the record, the median amount households owed on vehicle loans was a smaller $12,400. The median amount owed on credit cards was just $3,300.

The households most burdened by student loans are the same ones many businesses were counting on to spend their way out of the Great Recession: married couples with children (24 percent have student loans, and they owe a median of $15,000), renters (24 percent have student loans, and they owe a median of $12,000), and college graduates (25 percent have student loans, and they owe a median of $20,000).

A funny thing happened on the way to where we are today. Your customers signed on a dotted line, and now their current and future income is being siphoned off by someone else.

Are You Past Your Prime?

Staying on top of your finances is getting more and more complex. So complex, in fact, that doing it successfully is often beyond the capabilities of the inexperienced (such as young adults) and the naive (such as older adults). In fact, a study by the Center for Retirement Research at Boston College (What Is the Age of Reason? ) shows that younger and older adults do not make the best choices when managing their personal finances. Who does? To be precise, people aged 53.3.

That's right. A series of tests on people of different ages, asking them to make real-world decisions regarding credit cards and interest rates, for example, revealed that 53.3 is the average age when people make the fewest financial mistakes.

Another Look at Who Is to Blame

In a recent online poll, Time magazine asked its readers who was most to blame for the current economic crisis. Readers rated the guilt of 25 different people on a scale of 1 (innocent) to 10 (guilty). On that scale, the American Consumer rated an 8--even guiltier, according to the public, than George W. Bush or Alan Greenspan. "We've been borrowing, borrowing, borrowing," explained Time, "living off and believing in the wealth effect, first in stocks, which ended badly, then in real estate, which has ended even worse."

But is the American Consumer guilty as charged? Just in time to shed some light on the matter, the Federal Reserve Board has released the long-awaited results of the triennial Survey of Consumer Finances. The latest survey, taken in 2007, reveals the economic status of the average American household at the peak of our supposed profligacy. The survey results turn out to be a friendly witness, presenting evidence not of our guilt, but of our innocence. Yes, the results show our 2007 net worth swollen by inflated housing prices and they reveal the rush of money into real estate. But as in previous years, the results disprove the notion that the average household is deeply in debt.

Let's hear the evidence.

Exhibit 1: For the average household, debt is modest. The median amount of outstanding debt for households with debt (77 percent of all households) stood at $67,300 in 2007. This figure includes mortgage debt.

Exhibit 2: Most debt is mortgage debt. Seventy-five percent of the debt owed by the average household is the mortgage on their primary residence. Even this debt is not overwhelming. The median ratio of mortgage debt to housing value stood at 53.3 percent in 2007. Only 1 percent of homeowners had mortgage debt greater than the value of their primary residence.

Exhibit 3: Home equity loans are not common. Only 18 percent of homeowners had a home equity line of credit, and an even smaller 12 percent had an outstanding balance on a home equity loan. This proportion has not changed since 2004.

Exhibit 4: Few gambled in the housing market. The percentage of households with debts for "other residential properties" (second homes, rental units, investment properties, etc.) climbed between 2004 and 2007, rising from 4.0 to 5.5 percent. According to the Federal Reserve Board, this was the largest increase in the prevalence of debt among all types of debt, evidence of the rush to real estate during the housing bubble. Yet 94.5 percent of households did not drink the Kool-Aid.

Exhibit 5: Credit card balances are modest. Only 46 percent of households carried a balance on a credit card in 2007--a figure that was unchanged from 2004. The median outstanding debt for those with a credit card balance was just $3,000. Among households with bank-type credit cards, 55 percent say they pay their balance in full each month. The average credit card bill last month? Just $250.

Exhibit 6: Only a handful are in trouble. Only 14.7 percent of debtors owed more than 40 percent of their income, up slightly from the 12.2 percent of 2004. Despite this increase, the percentage of debtor households that were 60 or more days late in making a payment fell from 8.9 to 7.1 percent between 2004 and 2007.

The evidence proves that the average American household was on solid financial footing as of 2007. Consumers did not cause the financial crisis. The widespread belief that overconsumption is responsible for the meltdown is rooted in several factors such as falling prices for clothes, electronics, and many other goods (allowing people to buy more with less) and the presence of the large baby-boom generation in the peak spending lifestage.

But the saga continues. Although the Survey of Consumer Finances was taken in 2007, the Federal Reserve Board's analysis examines the impact on households of the financial collapse through October 2008. Housing values took a hit. The home equity of homeowners with mortgages fell from $91,000 in 2007 to $71,600 as of October 2008. The median ratio of mortgage debt to housing equity among homeowners with mortgages climbed 5 percentage points to 58.5 percent. The median value of the stock held by households fell from $35,000 to $22,500 between 2007 and 2008. Net worth also fell. In 2007, median household net worth stood at $120,300. By October 2008, the figure was down to $99,000, according to Federal Reserve estimates.

The sky has not fallen--yet. Note that even after the decline, the net worth of the average household is still very much positive--higher, in fact, than it was in 1998 after adjusting for inflation. But if in its soul searching the American public fails to place the blame for the financial crisis squarely where it belongs--on the financial institutions and government regulators who did not do their job--then consumer confidence will continue to fall, the recession will deepen, more will lose their jobs, and household wealth will plummet. The sky will fall.

Last of the Big Spenders

"Consumers stopped buying pretty much everything," commented the Associated Press in a news story about the 0.6 percent decline in February's retail sales. This bit of hyperbole about the $380 billion Americans spent at retailers in February is yet another example of the abysmal quality of reporting on trends in the consumer marketplace.

To put it bluntly, reporters just do not get it. They err--out of confusion or laziness--when they explain macroeconomic trends as if those trends describe the behavior of you and your neighbors. It is called anthropomorphizing, and it can be a harmless way of putting a human face on dry statistics. Not in this case. By anthropomorphizing macroeconomic trends, reporters are misleading the public about the real dynamics of the consumer marketplace.

For years, the people who bring us the news have been telling us what big spenders we are, when all along we have been cautious consumers. Now they are telling us what scrooges we are, when we are the same cautious consumers we have always been. How did reporters get so far off track?

It all started decades ago with the rise in personal consumption expenditures (PCE), a macroeconomic indicator. PCE is one of those dry statistics-the sum of all spending on consumer products and services in the United States. Between 1984 and 2006, PCE more than doubled after adjusting for inflation. Rather than explain the real reasons for the rapid growth in PCE, reporters simply anthropomorphized the trend and called Americans big spenders. In fact, average household spending grew by only 14 percent between 1984 and 2006, after adjusting for inflation--less even than the gain in real median household income. And the spending of baby boomers (the ones usually accused of being the most profligate spenders) increased by an even smaller 4 percent, according to the Consumer Expenditure Survey. This modest rise in spending is even more impressive when you consider the 59 percent increase in the price of a new single-family home during those years, the 100 percent increase in the cost of college, or the 101 percent increase in out-of-pocket health insurance expenses.

Clearly, the average American has been pinching pennies all along. What accounts, then, for the ballooning PCE? To answer the question, reporters needed to look under the hood of the macroeconomic trends and discover what drove the engine. If they had bothered to look, here is what they would have found:

The population is growing. The United States is one of the fastest growing developed countries in the world, so it is only natural that aggregate consumer spending will rise each year along with the population. This does not mean you and your neighbors are spending more, however.

Boomers filled the peak spending life stage. Over the past two decades the enormous baby-boom generation filled the 35-to-54 age group, the peak spending years. Consequently, the number of affluent households reached record levels, the housing market exploded, and the nation's aggregate spending soared--even as individual households held their spending in check.

The price of stuff plummeted. The average American home has multiple television sets, closets full of clothes, and a kitchen full of appliances. Americans have more stuff because stuff is cheap. Televisions, video recorders, microwaves, dishwashers, computers, cameras--if the product uses an electrical cord or a battery, chances are it costs a fraction of what it did two decades ago. Television sets, for example, cost 85 percent less than they did in the 1980s. Falling prices have affected more than electronics. Toys cost 32 percent less, and clothing is less expensive. Just because we have more does not mean we are spending more.

Credit card payments ballooned. Consumer borrowing has grown handily over the years, but not because the average American is drowning in debt. Consumers are paying with plastic as a convenience, not an easy-money scheme. According to a Pew Research Center survey, just 31 percent of consumers carry a balance on their credit card bill. Among those who carry a balance, the median amount owed is a modest $2,200, reports the Federal Reserve Board's Survey of Consumer Finances.

The real story behind consumer spending is this: Americans did not spend foolishly when times were good. And their skill at pinching pennies may help soften the landing in the bad times that lie ahead.

More Gold from Wealth Survey

Results from the long-awaited 2004 Survey of Consumer Finances were released by the Federal Reserve Board this morning, and number crunchers everywhere are drooling over the tables. It's a good thing the findings are so tasty because we will have to gnaw on them for the next three years.

NET WORTH: Household net worth (assets minus debts) barely increased between 2001 and 2004 (up 1.5 percent). Even worse, the net worth of householders aged 35 to 44 plunged by 16 percent during those years, after adjusting for inflation (falling from $82,600 to $69,400). Why? Their financial assets lost value, they took on more debt, and the small increase in the value of their nonfinancial assets (read: homes) did not make up the difference.

FINANCIAL ASSETS: The average household lost a lot of ground here. The median value of the financial assets owned by the average household fell 23 percent between 2001 and 2004, after adjusting for inflation--from a median of $29,800 to $23,000. A smaller 48.6 percent of households owned stock in 2004, down from 51.9 percent in 2001. Among families owning stock both directly and indirectly through mutual funds and retirement accounts, median stock value fell from $36,700 to $24,300. Financial assets as a share of total assets fell from 42 to 36 percent.

NON-FINANCIAL ASSETS: The rise in homeownership can be seen in these numbers. The homeownership rate increased from 67.7 to 69.1 percent between 2001 and 2004. The median value of the average household's nonfinancial assets (including homes) rose 22 percent from$120,900 to $147,800, after adjusting for inflation. The median value of the average household's primary residence climbed 22 percent, from $131,000 to $160,000.

DEBT: Not surprisingly, Americans are deeper in debt. The median amount of debt for households with debt (76 percent of households) rose by 34 percent between 2001 and 2004, from $41,300 to $55,300 after adjusting for inflation. Seventy percent of debt is for home purchase. Credit card debt remains modest. Forty-six percent of households carried a balance on their credit card, owing a median of just $2,200 in 2004.