How The Poor Use Credit Cards
January 6, 2000
Poor households have greatly expanded their use of credit cards since 1989, according to a study by Edward J. Bird of the University of Rochester and Paul A. Hagstrom and Robert Wild of Hamilton College.
- Whereas in 1989 only 17 percent of poor families had credit cards, the proportion of those having at least one card had grown to 36 percent.
- The average monthly balance of the poor with cards soared from $343 to $1,380 -- with the average charge by those carrying balances jumping to $236 a month.
- During the 1980s poor families reduced their credit card balances.
- But that changed starting in the 1990-91 recession when poor families greatly increased their debt loads -- which they continued to do in the subsequent recovery.
Experts theorize that poor families may be using credit cards to ease the transition from welfare to work. The problem is that servicing such debt becomes a growing burden -- lessening the amount of cash available for consumption.
Thus, whenever a recession occurs, many poor families will find themselves saddled with uncontrolled amounts of debt.
Source: Gene Koretz, "Plastic Puts the Poor at Risk," Business Week, January 10, 2000.
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