Social Networks and Credit Card Overspending among Young Adult Consumers

Article excerpt

Research that has looked at the reasons why young individuals overspend using their credit cards has not paid attention to the perceptions that they have about important others' credit card debt, their expectations as to how much to spend when they consume in the presence of them, and how the strength of the social relationships within their social network potentially influences the extent to which they overspend using their credit cards. A survey of 225 US university students composing a culturally diverse sample revealed that these social norms and network variables have interactive effects on credit card overspending. Specifically, the results show that the perceptions that young adult consumers have about important others' credit card debt impact their overspending using credit cards when they feel that they are expected to consume at the same level as important others in shared experiences, and when they are strongly connected to these individuals.

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Demographic and credit trends show that young people, and in particular students, may be the next segment of credit users that will face difficult financial times. In the United States, there are 19.1 million students who are attending colleges and universities (US Department of Education 2009). They account for approximately 6% of a population of 308 million people (US Census Bureau 2011). On average, students possess 4.6 credit cards (SallieMae 2009). They also owe more on their credit cards than they did just a few years ago; in 2004, students owed, on average, $2,900 on credit cards whereas in 2009 this figure soared by 78% to $4,100 (SallieMae 2009). Moreover, young consumers account for the second largest rate of bankruptcy in the United States (Sullivan, Thorne, and Warren 2001). Together, these figures suggest that young adult consumers in America spend more with their credit cards than they should. In addition, research shows that credit card debt is associated with financial stress (Grable and Joo 2006) as well as poor academic achievement (Pinto, Parente, and Palmer 2001). This growing problem

has recently been addressed by means of a US federal statute (Credit CARD Act of 2009). The Credit Card Accountability Responsibility and Disclosure Act of 2009 contains an entire section focusing on the protection of young consumers from the predatory lending tactics of credit card companies. One important provision of this legislation bars access to credit cards for students under the age of 21 without the consignment of an income-earning adult.

In addition to the changes made at the government level restricting access to credit cards for young consumers, research is needed to identify the reasons why they overspend using credit cards in order to reverse this trend and promote their financial well-being and that of the economy as a whole. Much of the research into spending with credit cards has focused on comparing spending behavior using credit vs. cash (Feinberg 1986: Hirschman 1982; Prelec and Simester 2001; Soman 2001; Soman and Cheema 2002). The present research deviates from that traditional approach by focusing on overspending using credit cards (OCC) among young adults. We define OCC as the tendency to spend more because of the availability of credit cards, with the consequence that such spending represents more than what one is able to pay back in a given period, leading to interest payments on credit cards' balances.

The research presented in this article centers on the issue of OCC among young adult consumers and aims to explain why they overspend on credit cards by focusing on three objectives: (1) assessing the effects of credit-related norms on OCC, (2) assessing the moderating impact of experiential norms on the relationship between credit-related norms and OCC, and (3) assessing the extent to which one's social ties moderate the relationship linking credit-related norms and experiential norms with OCC. …