Who Caused Credit Card Debt to Rise? To Decline?

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The run-up in credit card debt before the financial crisis was mostly due to older individuals. The decline in debt since then, however, was largely due to younger age groups, according to a recent Economic Synopses essay.

Research Officer and Economist Juan Sanchez and Technical Research Associate Helu Jiang noted that credit card debt rose about $114 billion during the period 2004-08, then fell about $193 billion during the period 2008-15.

For their analysis, the authors broke the increase and subsequent decrease down by age group. Regarding increases, Sanchez and Jiang found that credit card balances went up for each group, with almost 50 percent of the increase driven by individuals 56 and older. Borrowers under 46 accounted for only 25 percent of the increase.

The decrease in credit card debt, however, was concentrated mostly among younger individuals. People under 46 accounted for 68 percent of the deleveraging. Individuals 56 and older accounted for virtually none of the decrease in credit card debt. In fact, credit card debt increased for individuals 66-70.

Sanchez and Jiang pointed to job prospects as a possible reason for the decline of credit card debt among younger people. Specifically, job prospects deteriorated after the Great Recession, according to one study.¹ This decline may have prompted younger people to decrease their debt and increase their savings. Older people, on the other hand, wouldn’t have been affected by declining job prospects because they arguably had already climbed the job ladder, thus giving them less need to deleverage.

Regarding the increase in credit card debt before the recession, Sanchez and Jiang noted that relaxed credit limits may have played a role. They also noted that more study is needed on both effects. They wrote: “Identifying the real factors that caused the deleveraging is important because policy recommendations may depend crucially on them.”

¹ Moscarini, Giuseppe; and Postel-Vinay, Fabien. “Did the Job Ladder Fail after the Great Recession?” Journal of Labor Economics, January 2016, Vol. 34, Issue S1, Part 2, pp. S55-93.

• Economic Synopses: The Deleveraging of U.S. Households: Credit Card Debt over the Lifecycle
• On the Economy: Serious Delinquency Rates for Student Loans Remain High
• On the Economy: How Credit Card Debt Default Has Evolved