Effects of Low Income Families' Ability and Willingness to Use Consumer Credit on Subsequent Outstanding Credit Balances

By Zhu, Lillian Y.; Meeks, Carol B. | The Journal of Consumer Affairs, Winter 1994 | Go to article overview

Effects of Low Income Families' Ability and Willingness to Use Consumer Credit on Subsequent Outstanding Credit Balances


Zhu, Lillian Y., Meeks, Carol B., The Journal of Consumer Affairs


The indebtedness of American households grew substantially in the last decade. The outstanding balance of all consumer credit, excluding mortgage debt, was $800 billion at the end of 1990. The growth of consumer credit exceeded the growth of after-tax family income in the 1980s (Canner and Luckett 1991). More than 80 percent of families had consumer installment debt, a type of consumer credit, as reported in the 1986 Survey of Consumer Finances (Avery, Elliehausen, and Kennickell 1987). In 1988, each household owed an average of $7,104 for automobile installment loans, $3,029 for revolving credit, $2,192 in other consumer debts, and $1,661 in credit card balances (U.S. Bureau of Census 1990, 133). During the decade from 1980 to 1990, a considerable portion of household income, an average of 17 percent, was spent to repay consumer credit (Calem 1992; Canner and Luckett 1991). Along with the growth of consumer credit, there was an increase in the use of consumer credit among families whose incomes were lower than the majority of families in the mid-1980s.

REVIEW OF LITERATURE

This research focuses on consumer credit use in low income families. Access to credit by low income families may be limited. Their applications for credit are more likely to be turned down than other income classes because of credit qualification policies. Families with a net weekly income of $360 and less had fewer chances of obtaining a credit commitment and thus having access to credit than the average income family (Berthoud and Kempson 1990). Low income people may not even apply for credit for fear of being rejected. Legally and reasonably priced credit was not generally available to low income families before 1980 (Bowers 1979).

However, a dramatic change occurred in bank card holdings among low income consumers in the 1980s (Canner 1988). During the period from 1983 to 1986, the portion of families with incomes below $10,000 (1985 constant dollars) holding a credit card increased 91 percent. This increase is much greater than for any other income group. Low income groups still use less credit than higher income groups and have fewer credit commitments, according to the Household Credit Data Book (Krannert Graduate School of Management 1989).

The credit practices of low income families are quite different from those of families at other income levels. According to Howells (1990) below average income groups tend to use credit to help cope with budgeting troubles instead of increasing purchasing power. Families earning less than $10,000 per year are much more likely to maintain high outstanding credit card balances and to treat those balances as a type of installment debt. Fewer of them are concerned about the service features of credit, that is, convenience, safety, or identification (Bowers 1979; Bowers and Crosby 1980). Low income households are least likely to be able to borrow at a low interest rate or to possess assets to pay debts and they are more likely to pay the minimum payment on their credit cards, which results in a substantial burden of interest payments (Boston Company Economic Advisor Inc. 1992). Research on credit use by low income families has not been sufficient to explain their consumer credit behavior.

Many researchers have investigated the determinants of consumer credit use since the mid-1960s. The most commonly examined determinants of consumer credit use have been economic or sociodemographic variables, including annual family income, family assets, education, life cycle, gender, marital status, years at residence, size of household, ownership of an automobile, and housing status (Awh and Waters 1974; Canner and Cyrnak 1985, 1986; Canner and Luckett 1990, 1992; Courtless 1993; Danes and Hira 1990; Johnson and Sullivan 1981; Lindley, Rudolph, and Selby 1989; Tabor and Bowers 1977; Yeo 1991).

A few researchers have studied consumers' attitudes toward credit use as an indicator of their willingness to borrow, accompanied by discussions of various reasons for credit use. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Effects of Low Income Families' Ability and Willingness to Use Consumer Credit on Subsequent Outstanding Credit Balances
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.