The Effects of Credit Attitude and Socioeconomic Factors on Credit Card and Installment Debt

Article excerpt

Most previous research on credit use has examined the effect of socioeconomic and attitude variables without considering the possible correlation among these factors. Also, the studies have not considered whether there is a difference between general and specific attitudes toward credit and the use of credit. This study addresses those problems and includes installment debt as well as credit card debt in the analysis. The study used data from the 1998 Survey of Consumer Finances. The findings show the higher the specific attitude index, the higher the outstanding credit card balances, and the more favorable the general attitude toward using credit, the higher the installment debt. The results suggest the need for greater awareness on the part of consumers and consumer educators on the influence of attitude in the use of credit.

Do consumers' attitudes toward credit influence their use of it? Many studies have concluded that the dramatic growth in credit use since the 1980s is due, in fact, to the change in attitude toward credit (Canner and Cyrnak 1985; Godwin 1998; Norton 1993; Park 1993). Such a change in attitude implies that consumers are more willing to use credit to finance current consumption. Greater accessibility of credit (Bird, Hagstrom, and Wild 1997; Park 1993) or more knowledge about the benefits and risks involved in using credit (Kinsey and McAlister 1981) might account for the increased acceptability of credit. The widespread use of credit cards reflects consumer preference regarding prearranged lines of credit, and technological developments have made it much easier for creditors to offer revolving credit (Durkin 2000).

However, attitude might not necessarily predict behavior. Many studies in social psychology have found that attitude and behavior are not always compatible (Ajzen 1996). Sometimes a consumer's preference set is not equal to his or her choice set. For example, a consumer might like movie A rather than movie B, but because of social or situational pressures, the consumer decides to see movie B anyway. Although the attitude-behavior relationship has been studied extensively in social psychology, the attitude-behavior relationship in consumer finance may be more complex. For instance, consumers might have favorable attitudes toward borrowing, but because they have lower incomes or poor credit histories, they may be credit constrained.

Another issue associated with credit use is whether or not attitude has a net effect on credit use. The net effect of attitude means the effect of attitude on credit use after the effects of other factors such as demographic and economic factors have been removed. Because attitude toward credit might be highly related to demographic and economic factors (Bird, Hagstrom, and Wild 1997; Danes and Hira 1990; Modigliani 1986; Zhu and Meeks 1994), it is possible that attitude could only mediate the effects of demographic or economic factors on credit use. In other words, attitude might not have a unique effect on credit use at all. For example, instead of a simple preference for borrowing, those who are in the early stages of their career might have more favorable attitudes toward borrowing because they expect to have more future resources to pay off their debts. Also, high-income consumers might have more favorable attitudes toward credit use because they are less likely to be credit constrained and have more ab ility to pay off their debts than low-income consumers. Thus, consumers with different demographic and economic characteristics might develop different attitudes toward credit use. If so, would attitude still have a unique influence on credit use, after the effects of demographic and economic factors on credit use have been removed?

Most studies have examined the effects of attitude along with demographic and economic variables on credit use without considering the possible correlation among the variables (Calem and Mester 1993; Canner and Cymak 1985; Lown and Ju 1992). …