Credit Card Blues: The Middle Class and the Hidden Costs of Easy Credit

Abstract

In an era of increased access to credit, it becomes increasingly important to understand the consequences of taking on unsecured consumer debt. We argue that credit can have both positive and negative consequences resulting from its ability to smooth life transitions and difficulties but that this occurs simultaneously with increased financial risks and stress resulting from carrying unsecured debt. We find that those in the middle of the income distribution suffer the greatest disruptions to mental health from carrying debt. Affluent borrowers are relatively unmoved by debt, suggesting the use of short-term debt as a convenience strategy for the financially well heeled. The least advantaged borrowers also suffer emotionally less from debt, possibly because securing spendable funds for necessities remains their most pressing concern. The onset of the Great Recession, however, produced increased emotional distress for all classes.

ACKNOWLEDGMENTS

Support for this project is provided by a research grant from the National Endowment for Financial Education (NEFE). The arguments and findings presented here are the authors' own and do not reflect positions taken or supported by NEFE. Support was also provided by grant R24-HD058484 from the Eunice Kennedy Shriver National Institute of Child Health & Human Development awarded to the Ohio State University Initiative in Population Research.

NOTES

Notes

¹ Data were collected primarily via computer-assisted interviewer-administered personal interviews, with more sensitive questions handled through self-administration. Telephone interviews were conducted when in-person interviews were not possible (14 percent of the Round 13 sample). Respondents received a small monetary incentive for participation. A detailed account of the sampling and interview methods is provided online at https://www.nlsinfo.org/content/cohorts/nlsy97/intro-to-the-sample.

² Our focus on consumer debt as a source of emotional distress follows an emerging consensus that different types of debt may have starkly different consequences for people's lives and experiences (Porter 2012). For example, home debt, car debt, and student debt may be experienced more positively as considered and relatively secure investments rather than as more risky undertakings.

³ For information on retention rates, see https://www.nlsinfo.org/content/cohorts/nlsy97/intro-to-the-sample/retention-reasons-non-interview.

⁴ The effect of the size of the debt carried on depression also increases for upper income respondents after the start of the Great Recession; however, this effect is not statistically significant.