Credit card utilization and consumption over the life cycle and business cycle

Scott Fulford and Scott Schuh

No 17-14, Working Papers from Federal Reserve Bank of Boston

Abstract: The revolving credit available to consumers changes substantially over the business cycle, life cycle, and for individuals. We show that debt changes at the same time as credit, so credit utilization is remarkably stable. From ages 20?40, for example, credit card limits grow by more than 700 percent, and yet utilization holds steadily at around 50 percent. We estimate a structural model of life-cycle consumption and credit use in which credit cards can be used for payments, precautionary smoothing, and life-cycle smoothing, uniting their monetary and revolving credit functions. Our estimates predict stable utilization closely matching the individual, life-cycle, and business-cycle relationships between credit and debt. The preference heterogeneity implied by the different uses of credit cards drives our results. The revealed preference that some people with credit cards borrow at high interest, while others do not, suggests that around half the population is living nearly hand to mouth.

Keywords: credit cards; life cycle; consumption; saving; precaution; buffer stock (search for similar items in EconPapers)
JEL-codes: D14 D15 E21 E27 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2017-09-01
New Economics Papers: this item is included in nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.bostonfed.org/publications/research-de ... -business-cycle.aspx Summary (text/html)
https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/2017/wp1714.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:17-14

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().