NCPA - National Center for Policy Analysis

Charge It, Please

April 3, 1997

What factors are responsible for the sharp increase in consumer credit-card debt? Economist Donald Morgan and banking analyst Ian Toll, of the New York Federal Reserve, have looked into the matter and come up with some explanations.

  • One factor in the surge of bad debt write-offs among credit card companies could be the fact that baby-boomers are at their prime borrowing age -- between 25 and 54.
  • Also, real wealth has been rising in the U.S. -- giving people more assets to borrow against, to buy a bigger house, a nicer car or charge a new wardrobe.
  • Thanks to computers, credit card companies can more easily reach potential borrowers and offer them ways to buy now and pay later.
  • The researchers found that rising demand for credit is raising debt burdens, making borrowers riskier, and forcing up charge-offs not only among credit card issuers -- but among other types of consumer loan issuers as well.

The study concluded that the inclination of consumer activists to blame credit card companies for the run-up in bad debts is misplaced. The real answer lies in America's rising wealth and the demographics of the baby-boom generation.

Source: Perspective, "False Charges?" Investor's Business Daily, April 3, 1997.


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