When credit is cheaper to use and easier to arrange, people do use more of it. Hence those big, scary numbers, which grow along with the economy and the population. Contrary to a common perception, however, the people driving up the totals aren’t primarily the financially strapped. They’re “high-wealth consumers in their prime earning years,” observes Andrew Kish, an economist at the Philadelphia Federal Reserve. Almost half the growth in debt between 1989 and 2004 (the most recent year for which data are available) came from the highest-income 20 percent of American households.
(By contrast, the bottom 20 percent held about 3 percent of consumer debtan increase from 1.9 percentand accounted for a bare 4.5 percent of the growth.) If the rich are getting richer, it makes sense that they’re also running up more debt. They can reasonably expect to pay it. These affluent families also account for half of the outstanding consumer debt. So the $10,000 average that Obama cited isn’t in fact owed by the “typical” family with an average income. That figure is calculated by spreading the much larger debts of the rich over the population as a whole. All by herself, Cindy McCain owed at least $200,000 on two American Express cards, according to her husband’s campaign disclosure documents. That sounds terrifying until you realize that this wealthy woman pays her monthly AmEx bills in full.
Like those of Mrs. McCain, some of the credit-card balances included in government statistics aren’t really debt at all. They’re temporary charges for convenience’s sake. Nowadays, credit cards are easier to use than cashno fumbling for change while other shoppers wait impatiently behind you. Plus, companies offer rewards points and frequent-flier miles, and they give you a free float period if you pay your balance in full. So people who don’t need to borrow money use their credit cards as a convenience, running up charges over the course of a month and paying everything off when the bill comes due. Whatever they owe on the day that debt statistics are collected goes into the total figures on consumer credit. This “convenience use” grew from about 6 percent of total credit-card debt in 1992 to 11 percent in 2001, calculates Kathleen Johnson, a Fed economist. That growth was two and a half times the growth rate for credit-card borrowing overall.
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