No, People Don’t Get Buried In Credit Card Debt Because They’re Bad With Money

[xchrom]

http://thinkprogress.org/economy/2014/05/10/3436460/credit-card-debt/



You may think that if you spend wisely you’ll be able to avoid huge amounts of credit card debt. But those who have this debt not only spend more frugally than those without it, they actually got into the debt in the first place because of hardships out of their control, not due to unwise budgeting, according to a report from the think tank Demos.

The report found that households with a family member who was unemployed for at least two months over the past three years are 14 percent more likely to be carrying credit card debt than those who escaped a brush with unemployment. A quarter of low- and middle-income families with credit card debt say that a layoff or job loss contributed to it, while 16 percent said it was the main cause. And it’s not just joblessness: nearly 40 percent of households with debt said that a family member had been trying to work full time at some point over the last three years but was only able to get part-time work, compared to just 22 percent of debt-free households who went through the same.

Health issues also play a huge role. Households where a member has had to go without insurance are 20 percent more likely to carry credit card debt than those that have insurance. (The survey was in 2012, when 50 million Americans lacked health insurance and before much of the Affordable Care Act went into effect.) But medical issues can still cause debt even when someone has insurance. More than 60 percent of households with credit card debt, both with and without insurance, said out-of-pocket medical expenses contributed to it. Families often turn to credit cards to cover these expenses, and for those who do, the average amount of medical debt on their cards is $1,555. Perhaps worse, twice as many households with credit card debt forgo care as debt-free ones.

There are other factors that can lead to debt: Among households that own a home, those with credit card debt are significantly more likely to be underwater on their mortgages, or to owe more than their homes are worth. Households with children under the age of 18 are 15 percent more likely to carry debt than those without kids. That may not be surprising, given that it costs a family more than $240,000 in housing, food, clothing, health care, education, and other expenses to raise a child to the age of 17.

[shenmue]

1. That's true

It happened to me.

[FBaggins]

2. The title is unsupported by the rest of the article.

It might be correct to say that poor fiscal management is not the only reason that people get buried in credit card debt, but obviously that corrected title would result in a resounding "Duh" from most readers.

There are even a few cited facts that contradict their claims... yet the authors don't appear to realize it. One wonders how the authors would define "being good with money".

[Gormy Cuss]

3. Yes, the title and opening paragraph do not make clear WHICH people were the target of the analysis

What differentiates households that accumulate and carry balances on their credit cards from those that don’t have debt? Building on a national survey of 1,997 households, this study examines two groups of working age low- and middle-income households that are statistically indistinguishable in terms of income, racial and ethnic background, age, marital status and rate of homeownership—yet one group carries credit card debt, while the other has credit cards but no debt.

The lens was focused on low and middle income households only and the analysis was comparative of this subset only. The income parameters were households between 50 and 120% of the local median.

[FBaggins]

6. You're right... but I think it goes beyond that.

After reading that title, wouldn't you expect a study (that was more than the "study" version of a push-poll) to focus on what is meant by "buried in debt" and "bad/good with money"?

They instead measure only people who have carried any level of credit card debt... and seem clueless on what being "good with money" even means.

For instance - they seem shocked that otherwise-demographically-similar consumers' credit card debt is impacted by whether or not they have money in savings - while remaining blind to the fact that keeping some amount of money in savings for emergencies is pretty close to a fundamental requirement to be considered "good with money".

[Gormy Cuss]

8. Short answer: depends on the reason for the data collection

The analysis reads like first slices -- that is, simple counts by one attribute. Either there's not enough data richness to delve into issues like level of indebtedness or even cross tabulations of such as savings levels by income stratum, for example. Or Demos doesn't employ someone with the technical skills to do such an analysis. Unfortunately the linked Demos report didn't include a questionnaire or detailed quota group attributes so it's hard to tell which is the case here.

Either way, that doesn't mean the findings are faulty. Assuming that the sampling, execution, and weighting were done properly, the basic statistics shown are findings, if severely limited in terms of delving into reasons for the debt levels.

As for what 'good with money' means, it's clear that the author defines that as not having chronic credit card debt and/or having savings. While some will argue with that definition, IMHO that's not a bad definition for low to moderate income households.

[jeff47]

10. "Good with money" is not something you can measure empirically.

You can measure credit card debt empirically.

You can't measure "good with money" empirically. What one person thinks is a good decision, another will think is a bad decision.

[JJChambers]

4. Some people get into debt because they're bad with money. Some, for other reasons.

[WillowTree]

5. Yes, some people do. Ask me how I know.

[pipi_k]

7. Same here...

Almost 30 years ago.

I was very bad with money.


So another absolutist argument goes down the toilet.


Some people get into credit card debt due to no fault of their own...and others get into cc debt because they're bad with money.


I was in the second category.

[WillowTree]

9. Yeah, for a long time.......

.......I was an absolute financial moron. Somehow managed to grow a fiscal brain along the way and I even allow myself to have credit cards again with no negative reprecussions.

But yeah, the blanket statement that it's never for that reason is pertty silly.