Credit Card and Mortgage Debt: A Panel Study, 2004 and 2008 Richard K. Caputo Relying on data from the National Longitudinal Survey of Youth, 1979 cohort, this article examines the pervasiveness and depth of credit card and mortgage debt in 2004 and 2008 (N = 3,966). Findings indicate that (a) significant majorities experienced either credit card debt, mortgage debt, or both; (b) debtors increased as a proportion of the population between 2004 and 2008; (c) mortgage-related debt, but not credit card debt, was disproportionately distributed along sociodemographic characteristics (married, more affluent, and more educated) and by attitudinal dispositions (locus of control and self-esteem); and (d) separated/widowed/divorced persons and never married persons were more economically vulnerable, having higher mortgage debt-to-income ratios of more than 1.5 to 2 times their income.
Implications for Practice
Personal Debt in the United States
•
Agencies working with a clientele of young men, particularly of young Black men, can make it a part of routine services to inquire about credit card debt and incorporate financial counseling as part of their service mix.
•
Advocacy efforts aimed at loan forgiveness or deferral measures are warranted for economically vulnerable groups including never married, Black, and unemployed persons to minimize the prospect of their facing further economic vulnerability and of perhaps homelessness due to foreclosure.
In the early 2000s, the U.S. economy, characterized by modest employment growth and stagnant wages since the 2001 recession, exacerbated consumer debt such that families increased their debt relative to income four times faster than in the business cycle of the 1990s (Bucks, Kennickell, Mach, & Moore, 2009; Weller & Douglas, 2007). In 2004 debt exceeded income for the first time since 1980 when the Federal Reserve started keeping such records, reaching 104.8% of income, up 30.3% from the 2001 level of 78.1% (Weller, 2006). The percentage increase was highest for middle income quintile households, from 80.0% to 114.0%, compared with bottom income quintile households, from 50.0% to 68.8%, and top income quintile households, from 89.0% to 116.0%. Whites experienced a 31% increase in debt to income between 2001 and 2004, followed closely by Hispanics with a 29% increase, and Blacks with an 8% increase (Weller, 2007). By the second quarter of 2010, household debt equaled 118.4% of after-tax income, albeit a decline from the record high of 130.2% in the first quarter of 2008 (Weller, 2010). The seasonally adjusted household debt service ratio (DSR; i.e., the ratio of debt payments to disposable personal income) exceeded 13.0% in each of the four quarters for the first time in 2003 and did so through the second quarter of 2009 when it declined to 13.0% and stood at 12.4% in the first quarter of 2010, the most recently available data at the time of this writing (Federal Reserve Board, 2010a). The distribution of DSR was reported to vary by socioeconomic status (SES), with heavy indebtedness concentrated among lower income families: In 1998, for example, more than 65% of all families with DSRs above 40% had incomes below $50,000 (in 1998 dollars; Editors of Monthly Review, 2000). Mortgage debt, which hovered around $11 trillion annually since 2006
T
his article examines credit card and mortgage debt among a cohort of U.S. youth as they matured, entered the labor force, and formed their own families. It uses panel data gathered since 1979 to determine the pervasiveness and depth of credit card and mortgage debt in 2004 and again in 2008, thereby distinguishing this study from many prior research efforts that were primarily done one time only and were cross-sectional in nature. The study seeks to increase understanding of the depth of such debt in inflation-adjusted dollar terms at two points of time and of how levels of debt changed over that time. A greater understanding of levels and predictors of credit card and mortgage debt will enhance capacity to make more appropriate practice and policy responses or interventions aimed at increasing the economic well-being of families as a whole and as stratified along socioeconomic and racial/ethnic lines in particular. This article provides an overview of personal debt in the United States, reviews related research literature, describes study methods, reports findings, and presents policy and practice implications. Families in Society: The Journal of Contemporary Social Services ©2012 Alliance for Children and Families ISSN: Print 1044-3894; Electronic 1945-1350
2012, 93(1), 11-21 DOI: 10.1606/1044-3894.4181 http://www.familiesinsociety.org/ShowAbstract.asp?docid=4181
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Families in Society | Volume 93, No. 1
for one- to four-family-type residences, and to a lesser extent home-equity loan debts accounted for the lion’s share of total household debt, about 74% and 6%, respectively (Federal Reserve Bank of New York, 2010; Federal Reserve Board, 2010b). Credit card debt, accounting for about 6% of total household debt, also increased, by 315% between 1989 and 2006, from about $228 billion to about $947 billion (in 2010 dollars; García, 2007, 2008). In 2004, nearly 6 of 10 households using credit cards revolved their balances (rather than pay off the monthly debt) with an average current balance of $5,219 (García, 2007); for those with incomes below $35,000, the average balance was $6,500 (Draut, 2007). One third of credit card holders were reported to be paying interest rates in excess of 20%, with lower income households (i.e., below $25,000) more than twice as likely as households earning $50,000, and five times more likely than those earning $100,000 or more, to pay interest rates more than 20% (Wheary & Draut, 2007). Credit card defaults rose to 10.7% of all credit card debt by the second quarter of 2010, an increase of 155.4% from the fourth quarter of 2007 (Weller, 2010). A slow recovery from the 2008–2009 recession, prompted by a subprime-mortgages-related financial crisis (Beitel, 2008; Gerardi, Lenhert, Sherlund, & Willen, 2008), kept debt at the forefront of public concern even as interest rates subsequently reached lows not seen since the 1950s (Bernard & Anderson, 2008; Bowley, 2010; Dash, 2009; Foster & Magdoff, 2008; Pressman & Scott, 2009). Debt was dubbed a “new safety net” for families and households in the United States (Draut, 2007), in the short term providing relief from more formidable social problems associated with delinquent if not foregone mortgage and credit card payments and declared bankruptcies (Caputo, 2008). Although household borrowing peaked in 2008 and dropped thereafter (Baily & Lund, 2009), household debt (DSR) peaked in 2009 and, given stagnant wages and incomes for most workers and their families in the United States, remained higher than that throughout the 1990s (DeNavas-Wait, Proctor, & Smith, 2010; Eckholm, 2010; Federal Reserve Board, 2010a; Zezza, 2009). In addition, although total household delinquency rates declined to 11.4% of all outstanding debt on June 30, 2010, from 11.9% on March 31, and from 11.2% from June 30, 2009, serious delinquencies (i.e., those whose payments were more than 120 days late) had increased about 3.1% (Federal Reserve Bank of New York, 2010).
Literature Review In addition to public concern over the past two decades, there has been a steady stream of scholarly research focusing on factors associated with consumer debt, with par-
12
ticular attention to credit card and mortgage debt. Webley and Nyhus (2001) reviewed earlier research and noted that it provided a reasonable, albeit incomplete, picture of correlates of consumer debt: (a) the prototypical debtor was a young, single parent living in rented accommodation, with economic variables such as income and assets by themselves as predictors of debt, and (b) psychological factors such as locus of control and attitudes toward debt and credit were also found to be good predictors of consumer debt beyond economic factors. Causality, especially with regard to psychological measures associated with debt, was difficult to discern given that many of the earlier studies were cross-sectional. Much research since 2000 sought to overcome the limitations associated with cross-sectional studies, particularly those relying almost exclusively on socioeconomic measures. Webley and Nyhus (2001), for example, relied on three waves of panel data (1994, 1995, and 1996) that included socioeconomic and psychological measures, with the aim, among other things, of extending understanding of the economic psychology of debt. Results of their study corroborated earlier studies (e.g., Lea, Webley, & Levine, 1993) showing that economic measures were good predictors of debt, although psychological factors such as locus of control and attitudes toward debt also had explanatory power. Using an experimental and longitudinal design across three waves of survey data, Han and Sherraden (2009) also reported that changes in attitudes were accompanied by changes in the likelihood of saving in individual retirement accounts. This study has three main aims: (a) to increase understanding of the depth of credit card and mortgage debt, (b) to determine how levels of debt changed over time, and (c) to explore the influence of sociodemographic characteristics (e.g., ethnicity/race, marital status, sex, and SES) and attitudinal/psychological variables (e.g., locus of control and self-esteem) on credit card and mortgage debt. More specifically, this study sought to answer the following questions: 1. On average, how much credit card and mortgage debt did families incur? 2. To what extend did the level or depth of such debt change between 2004 and 2008? 3. How did credit card and mortgage debt vary by marital status? 4. To what extent were structural factors such as marital status and attitudinal characteristics such as locus of control robust predictors of such debt? A greater understanding of levels and predictors of credit card and mortgage debt will enhance ability to make more appropriate policy responses or program interventions aimed at increasing the economic well-being of families as a whole and stratified along socioeconomic, racial/ethnic, and gender lines.
Caputo | Credit Card and Mortgage Debt: A Panel Study, 2004 and 2008
Method Data and Subjects Data for this study come from the National Longitudinal Survey of Youth (NLSY79), a nationally representative sample of young men and women aged 14 to 22 years of age when first surveyed in 1979 (N = 12,686). The U.S. Bureau of Labor Statistics (BLS) and the Census Bureau sponsor and coordinate NLSY79 data collection; BLS regulates data availability to the public; and the Center for Human Resource Research (CHRR) at The Ohio State University manages the NLSY79 data files. NLSY79 respondents were surveyed annually from 1979 through 1994 and biannually thereafter through 2008, the most recent year of available data at the time of this study. During this time NLSY79 respondents formed their own families and entered the labor force. By 1985 all respondents were deemed eligible to be asked questions about home ownership, signifying that everyone met criteria determining independent household status, and a measure of total net family wealth was created adding self-reported dollar values of major assets (e.g., homes, vehicles) and subtracting related liabilities. In 2004 NLSY79 respondents were asked a series of specific questions about credit card debt (vis-à-vis debt owed to all creditors that had been asked about in previous years) and about home ownership. Similar questions were asked again in 2008. The study sample was derived from the 5,407 NLSY79 respondents who participated in each wave of data acquisition between 1979 and 2008. Relying on these “continuous” NLSY79 participants minimized the extent of using imputed values for missing data on ordinal and interval level measures, especially family income. The final study sample comprised the 3,966 respondents for whom information on all other study measures was known. The BLS made available customized sampling weights to ensure representativeness, given experimental mortality and initial oversampling of Black, Hispanic, and low-income youth (Zagorsky, n.d.). The customized sampling weight for NLSY79 respondents who participated in each survey year was used for this study. A preliminary analysis on family and other background measures obtained in Round 1 of the survey in 1979, and using the 1979 sampling weight, found no appreciable differences (i.e., > 10%) between the continuous participants in the study sample (N = 3,966) and initial NLSY79 respondents (N = 12,686) by likelihood of living with both parents at age 14 (76.2% vs. 73.3%, respectively), likelihood of living in an urban area at age 14 (78.2% vs. 77.2%), likelihood of living in the U.S. South at age 14 (30.0% vs. 31.6%), likelihood of living in a poor family in 1979 (11.2% vs. 16.2%), likelihood of being non-Hispanic Black (13.7% vs. 14.0%), or likelihood of being female (54.4% vs. 45.8%); nor by age in 1979 (M = 17.7 vs. 17.9
years old, respectively), mothers’ highest grade completed (11.8 and 11.6 years), fathers’ highest grade completed (12.1 and 11.7 years), and number of siblings (3.2 and 3.6). About $2,400 was found to separate the total family income of study sample participants ($20,767) from other NLSY79 respondents ($18,396) in 1979. This difference for total family income was deemed acceptable, given 23 waves over nearly 30 years of data collection from the same sample of individuals. Measures The independent measures or predictors. Background sociodemographic measures included age, race/ ethnicity, sex, SES in 1979, number of children ever had by 2004 and by 2008, and three measures of respondents’ living circumstances at age 14: whether they lived with both their parents, whether they lived in the U.S. South, and whether they lived in an urban area. SES was a categorical measure based on official federal poverty thresholds that accounted for family size. Respondents were accordingly classified as poor, that is, living in a family with an income-to-poverty ratio (IPR) < = 1; near poor with IPR > 1 < = 2; and more affluent with IPR > 2. Other related measures used as controls included education level (highest grade completed), family size, and weeks worked (lagged 1 year) in 2004 and in 2008; geographic residences in 2008 (i.e., lived in the U.S. South, lived in an urban area); and marital status in 2008. For the multinomial regression analysis described later, education classified respondents according to highest grade completed at the time of interview in survey years 2004 and 2008: less than high school, high school graduate, some college, or college graduate. Family size was dichotomized as 3 persons or less versus other. Work effort classified study subject as full-time workers (those reporting a combined total of 99 or more weeks of work in 2004 and 2008), parttime workers (those reporting between 1 and 98 weeks of work), and nonworkers (those reporting no weeks worked in both 2004 and 2008). Marital status in 2008 classified respondents as never married, married, or divorced/separated/widowed. Attitudinal or psychological measures included the Rotter Internal-External Locus of Control Scale and the Rosenberg Self-Esteem Scale (CHRR, n.d.). The Rotter Internal-External Locus of Control Scale is a four-item abbreviated version of a 23-item forced choice questionnaire adapted from the 60-item Rotter Adult I-E Scale developed by Rotter (1966). The scale is designed to measure the extent to which individuals believe they have control over their lives through self-motivation or self-determination (internal control), as opposed to the extent that the environment (i.e., chance, fate, or luck) controls their lives (external control). Scores range from 4 to 16 in the external direction; that is, the higher the score, the more external the individual. The summed 13
Families in Society | Volume 93, No. 1
score on the NLSY79 abbreviated version was found to correlate well with self-esteem (r = −.278, p < .001) and education (r = −.215, p < .001), and to a lesser extent social class ([family income] r = −.086, p < .001), but the internal consistency of the scale was quite low for the whole cohort (α = .36). Separate estimates by race and sex did not yield significantly higher reliability estimates for the whole cohort. The internal consistency of the scale was lower for the study sample (α = .22). The Rosenberg Self-Esteem Scale was administered during the 1980, 1987, and 2006 interviews (CHRR, n.d.). This 10-item scale, designed for adolescents and adults, measures the self-evaluation that an individual makes and customarily maintains. It describes a degree of approval or disapproval toward oneself (Rosenberg, 1965). The scale is short, widely used, and has accumulated evidence of validity and reliability. It contains 10 statements of self-approval and disapproval with which respondents are asked to strongly agree, agree, disagree, or strongly disagree. In earlier studies, the scale was found to be highly internally consistent, with reliability coefficients that ranged from .87 (Menaghan, 1990) to .94 (Strocchia-Rivera, 1988), depending on the nature of the NLSY79 sample selected. The internal consistency of the items obtained in 1980, which constituted the scale used for this study, was also found to be highly consistent for the study sample (α = .82). Dependent measures of debt. For purposes of this study, inflation-adjusted (in 2010 dollars) self-reported dollar amounts of credit card and home mortgage debt in 2004 and 2008 were used to measure degree of debt. Ratios of credit card debt and mortgage debt to total net family income were also created for 2004 and 2008, signifying a family’s capacity to carry or pay down debt. Debtor status was a five-category measure comprising credit card-only debtors (those who reported only credit card debt in 2004 and 2008), mortgage-only debtors (those who reported only home ownership debt in 2004 and 2008), credit card and mortgage debtors (those who reported credit card and mortgage debt in 2004 and 2008), mix debtors (those who reported any other combination of credit card or mortgage debt in 2004 or 2008), and nondebtors (those who reported no debt in both 2004 and 2008). Procedures Chi-square and ANOVA were used to assess the relationship between debtor status and each independent measure. Multinomial regression was used to determine robust predictors of debtor status, with nondebtors serving as the referent category. Pearson correlation and chisquare were used to determine bivariate relationships among independent measures such that one of two too highly correlated measures could be omitted from the multinomial regression analysis. For example, as indicated later, family size in 2004 and 2008 were both found 14
to be related to debtor status, but in a separate analysis not shown they were also found to be strongly correlated (r = .732, p < .01), as were pairwise comparisons of SES in 1979, 2004, and 2008—about 88% of those living in more affluent families in 1979 were also living in more affluent families in 2004 (χ2 = 327.46, p < .001) and in 2008 (χ2 = 338.52, p < .001). For purposes of multinomial regression analysis, priority for inclusion in the models was given to temporal ordering such that family size in 2004 rather than in 2008 and SES in 1979 rather than in 2004 or 2008 were retained as correlates of debtor status whose robustness was to be determined. Limitations The NLSY79 is representative only of the cohort of youth 14–22 years of age in 1979. It is not representative of the U.S. population. Generalizations to the broader population are thereby compromised and should be made cautiously, if at all. The study accounts for debt in only 2 years, albeit one before and at the cusp of the 2008–2009 recession. Future research should focus on depth of debt during and after the recession. Finally, the study took no account of assets other than home ownership in terms of mortgages. Future researchers would be encouraged to consider the role of assets, particularly liquid assets such as individual development accounts, with regard to debt acquisition and management.
Findings Descriptive Statistics Debtor status. The vast majority of the study sample (89.6% weighted, n = 3,362) reported some level of credit card or home ownership debt in either 2004 or 2008, and the number of years they reported credit card and home ownership debt was strongly correlated (r = .642, p < .01). More than two thirds of the study sample (67.5%) reported that they either owned or were making payments on their homes in 2004, and this increased to nearly three fourths (72.6%) in 2008. Nearly three fourths of the study sample (74.1%) reported that they owed money on credit cards in 2004, and this increased to more than four fifths (80.7%) in 2008. A significant majority (86.7%) reported that they owed money on credit cards and either owned or were making payments on their homes in 2004, and this increased to a vast majority (95.4%) in 2008. Over half the study sample (55.0%) reported credit card and home ownership debt in both 2004 and 2008. Over two thirds (69.0%) reported credit card debt, and nearly two thirds (62.1%) reported home ownership debt in both 2004 and 2008. As can be seen in Tables 1 and 2, most study measures were found to be significantly related to debtor status. Overall, these bivariate findings suggested that mortgagerelated debt was disproportionately distributed among
Caputo | Credit Card and Mortgage Debt: A Panel Study, 2004 and 2008
Table 1. Nominal Level Characteristics of the Study Sample by Debtor Status Debtor status (N = 3,966)
Characteristics Background At 14 years old Lived in U.S. South No Yes Lived with mother & father No Yes Urban No Yes Race/ethnicity Black Hispanic Non-Black Non-Hispanic SES in 1979 Poor (IPR12) Sex Male Female In 2004 SES Poor (IPR12) Highest grade completed < HS HS grad Some college College grad Marital status Never married Married Sep/wid/div In 2008 Highest grade completed < HS HS grad Some college College grad Marital Status Never married Married Sep/wid/div Lived in U.S. South No Yes Urban No Yes
Credit card only in 2004 & 2008 (n = 274)
Homeowner only in 2004 & 2008 (n = 190)
5.4 6.0
2.2 7.7
58.0 48.0
25.4 25.0
9.1 13.4
7.2 5.0
5.0 3.5
42.6 59.1
28.6 24.2
16.6 8.3
4.9 5.7
5.2 3.5
56.0 54.7
25.8 25.1
8.0 11.0
10.3 8.0 4.5
8.0 3.9 3.1
25.6 44.0 61.1
26.2 30.4 24.7
29.9 13.7 06.6
9.1 6.8 4.4
6.6 5.0 2.9
32.6 45.4 63.0
25.6 29.3 23.8
26.1 13.5 6.0
5.4 5.7
4.0 3.7
54.3 55.7
25.1 25.4
11.1 9.6
12.4 9.2 4.5
10.4 9.5 2.6
9.5 27.9 62.1
17.3 27.3 25.7
50.4 26.1 5.0
8.1 6.1 7.7 2.6
13.1 5.1 2.7 1.4
25.1 48.6 53.7 70.7
27.7 24.3 28.6 23.4
29.6 16.0 7.2 1.9
10.6 2.9 10.8
4.9 3.2 5.3
28.5 68.1 39.3
28.7 22.9 30.9
27.3 2.9 23.7
4.7 6.2 7.9 2.9
14.2 5.8 2.6 1.4
16.2 46.6 53.7 70.1
30.2 24.5 28.1 23.7
34.8 16.9 7.7 1.9
11.1 3.0 9.8
4.6 2.6 7.1
28.2 68.1 31.4
27.4 23.4 29.6
28.8 2.8 22.1
5.6 5.5
2.5 6.4
57.0 51.2
25.2 25.5
9.8 11.5
4.8 5.8
5.1 3.4
60.7 53.0
23.6 25.9
5.7 12.0
Credit card & homeowner in 2004 & 2008 (n = 1,872)
Credit card &/ or homeowner in either 2004 or 2008 Nondebtors (n = 1,026) (n = 604)
χ2
Sig.
130.76
***
138.74
***
15.40
**
590.24
***
423.41
***
4.66
ns
969.69
***
521.10
***
860.83
***
461.82
***
965.71
***
67.21
***
68.99
***
Note. Weighted percentages are shown. *** p < .001; ** p < .01.
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Families in Society | Volume 93, No. 1
Table 2. Scale Level Characteristics of the Study Sample by Debtor Status 1
2
3
Credit card only: 2004 & 2008 (n = 274) 17.5620
Homeowner only: 2004 & 2008 (n = 190) 17.4158
Credit card & homeowner: 2004 & 2008 (n = 1,872) 17.6907
Characteristics Age in 1979 Attitudes Rotter locus of 9.0109 9.3000 control (1979) Self-esteem 21.8577 21.4368 (1980) Children (# ever had) As of 2004 2.1168 2.2211 As of 2008 2.1277 2.2368 Education (highest grade completed) As of 2004 12.9088 12.5263 As of 2008 13.1168 12.7526 Family size In 2004 2.7153 2.9895 In 2008 2.5292 2.6789 Work Weeks worked in 36.7701 38.7947 2004 Weeks worked in 38.7847 36.8368 2008
4 Credit card &/or homeowner: either 2004 or 2008 (n = 1,026) 17.4756
5
Nondebtors (n = 604) F-value Sig. 17.3742 3.17 * 22.40 *** 9.2666
8.3857
8.5331
23.0256
22.5984
21.0894
32.30
2.1079 2.1229
2.0897 2.1053
2.1772 2.1854
2.60 2.38
14.2650 14.3697
13.6101 13.7778
12.0629 12.2566
3.4594 3.2623
3.0214 2.8099
45.3889 45.8072
Post hoc 3 > 5; 3,1,4,2,5 2,5,1 > 4,3
***
3,4,1 > 2,5
* *
ns ns
119.59 107.60
*** ***
3 > 4 > 1,2,5; 1 > 5 3 > 4 > 1,2,5; 1 > 2
2.7351 2.4652
38.23 48.72
*** ***
3 > 4,2,5; 4 > 5,1 3 > 4,2,1,5; 4 > 1
43.0634
30.8990
77.74
***
3 > 4,2,1 > 5; 4 > 1
43.5409
30.2036
93.47
***
3>4>1>2>5
Note. Post hoc tests for mean differences are significant at the .05 level. *p < .05; ***p < .001.
Table 3. Debt Amounts and Net Family Income (2010 $$) by Marital Status, Type of Debtor, and Year Married Type of debtors 2004 2008 Amount of debt CC 4,445 7,901 M 114,035 94,661 CCM CC 4,332 4,822 M 147,200 154,554 Net family income CC 112,985 83,619 M 101,602 85,272 CCM 117,693 122,325 Ratio of debt amount to net family income (%) CC/NFI 3.9 9.4 M/NFI CCM CC/NFI M/NFI
Separated, widowed, or divorced 2004 2008
Never married 2004 2008
3,887 69,366
7,749 40,174
2,920 75,854
2,610 54,687
7,917 132,732
3,540 121,359
3,537 104,157
4,027 109,380
60,687 51,006 69,517
44,240 30,741 63,455
60,205 46,566 71,061
48,872 36,963 68,557
6.4
17.5
4.8
5.3
112.2
111.0
136.0
130.7
162.9
148.0
3.7 125.1
3.9 126.3
11.4 190.9
5.6 191.3
5.0 146.6
5.9 159.5
Note. CC = credit card only; M = mortgage only; CCM = credit card and mortgage; NFI = net family income. Amounts shown are only for those who reported they owned credit cards and owed money on them or had purchased homes and had outstanding mortgages in each of the two survey years.
16
Caputo | Credit Card and Mortgage Debt: A Panel Study, 2004 and 2008
Table 4. Multinomial Regression Debtor status Credit card only 2004 & 2008 Age (1 = Young) Race/ethnicity Black Sex (1 = Male) Education in 2004 Some college College graduate Marital status in 2008 Married Work effort (full time) Mortgage only 2004 & 2008 Lived in South at age 14 Race/ethnicity Black Marital status in 2008 Married Sep/wid/div Work effort (full time) Credit, mortgage 2004 & 2008 Attitudes Self-esteem (1 = Lowest quintile) SES in 1979 Affluent Race/ethnicity Black Hispanic Sex (1 = Male) Education 2004 High school graduate Some college College graduate Family size 2004 (1 = 3 or less) Marital status 2008 Married Work effort Part time Full time Mix of credit, mortgage Attitudes Locus of control (1 = Lowest quintile) Self-esteem (1 = Lowest Quintile) SES in 1979 Affluent Race/ethnicity Black Sex (1 = Male) Education 2004 Some college College graduate Marital Status 2008 Married Work effort Part time Full time -2 Log likelihood Nagelkerke R2
Sig.
Wald
Exp(B)
95% CI for Exp(B) Lower Upper
0.401
*
7.63
1.493
1.036
2.151
0.561 0.353
** *
7.933 5.128
1.752 1.423
1.186 1.049
2.589 1.931
−1.008 −0.966
*** **
14.735 7.677
0.365 0.380
0.218 0.192
0.611 0.754
−0.872 −0.715
*** **
17.064 9.006
0.418 0.490
0.277 0.308
0.632 0.781
−1.014
***
28.014
0.363
0.249
0.528
5.535
1.695
1.092
2.630
39.901 4.660 7.552
0.205 0.602 0.463
0.125 0.380 0.267
0.335 0.954 0.802
9.906
1.602
1.195
2.149
B
0.527 −1.584 −0.508 −0.770
0.472
* *** * **
*
−0.796
***
22.524
0.451
0.325
0.672
1.487 0.394 0.529
*** * ***
124.686 4.838 18.142
5.968 1.483 1.697
4.373 1.044 1.330
8.195 2.106 2.165
−1.109 −1.921 −2.986 0.300
*** *** *** *
24.222 60.666 101.374 4.892
0.330 0.146 0.050 1.350
0.212 0.090 0.028 1.035
0.513 0.237 0.090 1.761
−2.662
***
223.085
0.070
0.049
0.099
−0.558 −1.990
** ***
6.758 88.859
0.572 0.137
0.376 0.090
0.872 0.207
−0.446
*
6.484
0.640
0.454
0.902
0.410
*
7.912
1.506
1.132
2.004
−0.452
**
7.762
0.637
0.463
0.857
1.118 0.385
*** **
51.520 10.002
3.058 1.469
2.254 1.158
4.149 1.865
−1.149 −1.822
*** ***
28.329 44.236
0.317 0.162
0.208 0.095
0.484 0.277
−1.742
***
108.059
0.175
0.126
0.243
−0.768 *** 13.528 −1.730 *** 69.849 7479.159 (χ2 = 1968.65, p < .001) 0.421
0.464 0.177
0.308 0.118
0.699 0.266
Note. Only statistically significant measures are shown. Reference categories: Model = Nondebtors in 2004 and 2008; Education in 2004 = Less than high school; Race/ethnicity = Non-Hispanic Non-Black White; Marital status = Never married; Work effort = No work; for locus of control and self-esteem, 0 = other. *p < .05; **p < .01; ***p < .001.
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Families in Society | Volume 93, No. 1
married, more affluent, more highly educated, and nonBlack/non-Hispanic persons, as well as those with more internal locus of control and a greater sense of self-esteem. No further elaboration of these bivariate findings was warranted at this time since our primary interest was in identifying robust predictors of debtor status, that is, measures found to be statistically significant when taking others into account. Amount and vulnerability of debt. Before turning to the multinomial regression results, however, it was worth noting that the amounts of debt varied by marital status in 2004 and 2008. As can be seen in Table 3, separated/ widowed/divorced persons were the most economically vulnerable: Among those who carried both credit card and mortgage debt, they had the highest mortgage-debtto-income ratios in both years, at nearly twice their income (191%) vis-à-vis married (about 125% in both years) or never married persons (147% in 2004 and 160% in 2008). Among those with mortgage debts only, however, never-married persons had the highest mortgage-debtto-income ratios: 163% in 2004 and 148% in 2008. With two or three notable exceptions (separated/widowed/ divorced persons CC/NFI = 17.7% in 2008 and 11.1% in 2004; married persons CC/NFI = 9.4% in 2008), credit card debt was more uniformly distributed by marital status, about 4-6% of income on average. Multinomial Regression Statistics Credit card only debtors relative to nondebtors. As can be seen in Table 4, six measures were found to be robust predictors of credit card-only debtors (those who reported only credit card debt in 2004 and 2008) relative to nondebtors: age, race/ethnicity, sex, education in 2004, marital status in 2008, and work effort (average number of weeks worked in 2004 and 2008, full time = 48 weeks or more, part time between 1 and 47 weeks worked vs. nonworking persons). The younger half of the cohort, that is, those who were under 18 years of age in 1979 (or 41 to 46 years old in 2008), were 1.5 times more likely to be credit card-only debtors than they were to be nondebtors. Blacks were 1.8 times more likely than non-Black non-Hispanic persons to be credit cardonly debtors than they were to be nondebtors. Males were 1.4 times more likely than females to be credit card-only debtors. College graduates in 2004 were 2.6 times less likely than non-high school graduates to be credit card-only debtors than they were to be nondebtors; those with some college were 2.7 times less likely than non-high school graduates to be credit card-only debtors. Married persons were 2.4 (1/.418) times less likely than never married persons to be credit card-only debtors than they were to be nondebtors. In regard to work effort, full-time workers were 2.0 times less likely than nonworking persons to be credit card-only debtors than they were to be nondebtors. 18
Mortgage-only debtors relative to nondebtors. Four measures were found to be robust predictors of mortgageonly debtors (those who reported only home ownership or mortgage debt in 2004 and 2008) relative to nondebtors: living in the South at age 14, race/ethnicity, marital status in 2008, and work effort. As can be seen in Table 4, those living in the South at age 14 were 2.8 time less likely than those living elsewhere at age 14 to be mortgage-only debtors than they were to be nondebtors. Blacks were 5.5 times more likely than non-Hispanic non-Black persons to be mortgage-only debtors. Married persons were 4.9 times less likely than never married persons to be mortgage-only debtors than they were to be nondebtors; separated/widowed/divorced persons were 1.7 times less likely. In regard to work effort, full-time workers were 2.2 times less likely than nonworking persons to be mortgage-only debtors than they were to be nondebtors. Credit card and mortgage debtors relative to nondebtors. Ten measures were found to be robust predictors of credit card and mortgage debtors (those who reported credit card and home ownership debt in 2004 and 2008) relative to nondebtors: attitudes (self-esteem), SES in 1979, two race/ethnicity measures (Black and Hispanic vs. non-Black non-Hispanic persons), sex, education, family size in 2004, marital status in 2008, and two work effort measures in 2004 and 2008 (full time and part time vs. nonworking persons). Those with low self-esteem (i.e., in the lowest quintile on the Rosenberg Self-Esteem Scale) were 1.6 times more likely than others to be credit card and home ownership debtors then to be nondebtors. Those who lived in affluent families in 1979 (i.e., those whose family income-to-poverty ratios exceeded 2) were 2.2 times less likely than those in other quintiles to be credit card and home ownership debtors. Blacks and Hispanics were respectively 6.0 and 1.5 times more likely than non-Hispanic non-Black persons to be credit card and home ownership debtors than they were to be nondebtors. Males were 1.7 times more likely than females to be credit card and home ownership debtors. Regarding education, compared with non-high school graduates, high school graduates were 3.0 times less likely to be credit card and home ownership debtors than they were to be nondebtors; those with some college were 6.8 times less likely to be credit card and home ownership debtors; and college graduates were 20.0 times less likely to be credit card and home ownership debtors. Those who lived in families with three or fewer persons in 2008 were 1.4 times more likely than those in larger size families to be credit card and home ownership debtors than nondebtors. Married persons were 14.3 times less likely than never-married persons to be credit card and home ownership debtors. With regard to work effort, compared with nonworking persons, full-time workers and part-time workers were 7.3 and 1.7 times less likely to be credit card and home ownership debtors.
Caputo | Credit Card and Mortgage Debt: A Panel Study, 2004 and 2008
Mix debtors relative to nondebtors. Ten measures were found to be robust predictors of mix debtors (those who reported any other combination of credit card or home ownership debt in 2004 or 2008) relative to nondebtors: two attitudes (locus of control and self-esteem), SES in 1979 (affluent), race/ethnicity (Black), sex, two education measures (some college and college graduate), marital status in 2008, and two work effort measures in 2004 and 2008 (full time and part time vs. nonworking persons). Regarding attitudes, those in the lowest quintile scores on the Rotter Internal-External Locus of Control Scale (i.e., those with a greater sense of internal control) were 1.6 times less likely than those in the other quintiles to be mix debtors than nondebtors; those with low self-esteem (i.e., in the lowest quintile on the Rosenberg Self-Esteem Scale) were 1.5 times more likely than others to be mix debtors. Those who lived in affluent families in 1979 (i.e., those whose family income-to-poverty ratios exceeded 2) were 1.6 times less likely than those in other families to be mix debtors than nondebtors. Blacks were 3.1 times more likely than non-Hispanic non-Black persons to be mix debtors than nondebtors. Regarding education, compared with non-high school graduates, those with some college and college graduates were 3.2 and 6.2 times less likely to be mix debtors than they were to be nondebtors. Married persons were 5.7 times less likely than never married persons to be mix debtors than they were to be nondebtors. In regard to work effort, compared with nonworking persons, fulltime workers and part-time workers were 5.6 and 2.2 times less likely to be mix debtors.
Discussion Findings indicate that significant majorities of the nation’s families experienced either credit card debt, home ownership debt, or both; that debtors increased as a proportion of the population between 2004 and 2008; that mortgagerelated debt, but not credit card debt, was disproportionately distributed along sociodemographic characteristics (married, more affluent, and more educated) and attitudinal dispositions (locus of control and self-esteem); and that separated/widowed/divorced persons and never-married persons were the more economically vulnerable having higher mortgage-debt-to-income ratios of more than 1.5 to 2 times their income in 2004 and in 2008; and that credit card debt was modest relative to income and thereby manageable with appropriate assistance. On the whole, findings of this study suggest that debt levels relative to income were higher for the study sample than for the tax-paying population at large in 2004 and got even worse as did the economy in general by 2008 (Weller, 2010). What follows are implications for policy and practice guided by those robust predictors found first for credit card-only debtors relative to nondebtors, then
for mortgage-only debtors relative to nondebtors, and for credit card and mortgage debtors and for mix debtors relative to nondebtors. Policy and Practice Implications Credit card-only debtors. Study findings suggest that those who are more likely to experience only credit card debt (no mortgage debt) relative to nondebtors are younger in age, Black, or male. In contrast, being a college graduate or having attended some college (vs. less than high school degree), being married (vs. never married), or working full time (vs. not working) decreases the likelihood of experiencing only credit card debt relative to nondebtors. Agencies working with a clientele of young men, particularly of young Black men, can make it a part of routine services to inquire about credit card debt and incorporate financial counseling as part of their service mix. Financial literacy is something that schools can encourage at early ages, along with general information about the credit card industry and related marketing techniques that make credit card ownership too easy to obtain and credit card debt socially desirable as a lifestyle vis-à-vis a short-term temporary way to meet immediate need. Employment is an important factor minimizing the likelihood of credit card debt, as it is for mortgage debt only as well as in any combination of debt, suggesting that policies aimed at reducing unemployment and out of labor force attachments as well as increasing human capital to enhance one’s employability are warranted. Mortgage-only debtors. Study findings suggest those who are more likely to experience only mortgage debt (no credit card debt) relative to nondebtors face greater economic vulnerability. Living in the South at age 14 (vs. elsewhere), being married or separated/widowed/ divorced (vs. never married), and working full time (vs. not working) decrease the likelihood of experiencing only mortgage debt relative to nondebtors, whereas being Black increases the likelihood of experiencing only mortgage debt relative to nondebtors. The findings of this study suggest that economically vulnerable groups including never married, Black, and unemployed persons carry mortgage debt at higher levels than others in relation to their income capacity. Loan forgiveness or deferral measures are warranted for these groups to minimize the prospect of their facing further economic vulnerability and of perhaps homelessness due to foreclosure. Proposals such as that proposed by the Federal Reserve to require borrowers to pay off remaining principal before lenders give up security interest should be rejected (“Editorial: The Fed and Foreclosures,” 2010). Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) is a step in the right direction. In effect, among other things, it transfers $3 billion in Troubled Asset Relief Program (TARP) funds, created as part of the Emergency Economic Stabilization 19
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Act (2008) to the Department of Housing and Urban Development to be credited to the Emergency Homeowners’ Relief Fund for emergency mortgage assistance; amends the Emergency Housing Act (1975) to permit emergency mortgage assistance if the mortgagor has incurred a substantial reduction in income as a result of involuntary unemployment or underemployment due to medical conditions; revises requirements for emergency mortgage assistance to replace the maximum amount of $250 per month with an amount determined reasonably necessary to supplement what the homeowner is capable of contributing toward the mortgage payment; requires a homeowner’s ability to repay to be taken into account when establishing rates, terms, and conditions for loans or advances of credit; authorizes any eligible homeowner who receives such a grant or credit advance to repay the loan in full, without penalty, by lump sum or by installment payments at any time before it becomes due and payable; and repeals the 40% cap on the total amount of loans and credit advances by a financial institution that may be insured and the 90% cap on the payment of any single loss claim that may be paid out. More might be done, however, by more explicitly availing emergency mortgage assistance to those to who have incurred a substantial reduction in income as a result of involuntary unemployment or underemployment for 6 months or more due to job loss (Congressional Oversight Panel, 2010). In addition, more closely monitoring and flagging those falling behind on Home Affordable Modification Program or HAMP-modified mortgages would reduce or prevent recurrent defaults, thereby keeping current occupants in their homes under new payment plans (Congressional Oversight Panel, 2009). Credit card and homeowner debtors, and for mix debtors. Study findings suggest who is more likely to experience both credit card and mortgage debt, relative to nondebtors. This is the case for those who experience both types of debt for 1 year or more. It should be recalled that credit card and mortgage debtors and mixed debtors made up the vast majority of debtors in the study sample who carried either credit card or mortgage debt in 2004 and 2008. Having low self-esteem or a greater degree of external control, being Black or Hispanic, being male, and living in families with three or fewer persons increase the likelihood of experiencing both credit card and mortgage debt relative to nondebtors, whereas living in affluent families during adolescence, having an educational level at or above a high school graduate, being married (vs. never married), and working either full time or part time (vs. not working) decrease the likelihood of experiencing only credit card debt relative to nondebtors. The program and policy prescriptions noted earlier for credit card-only and for mortgage-only debtors apply here and need not be repeated. In addition, however, to the extent self-esteem and locus of control are ame20
nable to change, interventions aimed at increasing one’s self-esteem and sense of internal control would reduce the likelihood of carrying concomitantly credit card and mortgage debt. When devising and implementing interventions, policymakers and human service professionals can also benefit from knowing that work effort is a robust predictor of carrying credit card and mortgage debt at the same time. Any policy or program intervention aimed at increasing work effort would decrease the likelihood of families experiencing both credit card and mortgage debt, particularly with unemployment rates hovering at nearly 10%, as they have for the past several years (Bureau of Labor Statistics, 2010). Findings also suggest that underwriting mortgages or providing tax credits to those who can demonstrate that their houses are “underwater” (i.e., worth considerably less than the purchase price), determined perhaps by a politically acceptable formula related to income, are warranted. References Baily, N. M., & Lund, S. (2009). American hangover. The International Economy, 23(3), 23–25, 59. Beitel, K. (2008). The subprime debacle. Monthly Review, 60(1), 27–44. Bernard, T. S., & Anderson, J. (2008, November 16). Downturn drags more consumers into bankruptcy. New York Times, p. A1. Bowley, G. (2010, September 9). Falling rates aid debtors, but hamper savers. New York Times, p. A1. Bucks, B. K., Kennickell, A. B., Mach, T. L., & Moore, K. B. (2009). Changes in U.S. family finances from 2004 to 2007: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin, 91, A1–A56. Retrieved from http://www. federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf Bureau of Labor Statistics. (2010). The employment situation— October 2010. Retrieved from http://www.bls.gov/news.release/ archives/empsit_11052010.pdf Caputo, R. K. (2008). Marital status and other correlates of personal bankruptcy, 1986–2004. Marriage & Family Review, 44(1), 5–32. Center for Human Resource Research. (n.d.). NLSY79 user guide: Attitudes and expectations. Retrieved from http://www.nlsinfo. org/nlsy79/docs/79html/79text/attitude.htm Congressional Oversight Panel. (2009). December oversight report: Evaluating progress on TARP foreclosure mitigation programs. Retrieved from http://www.docstoc.com/docs/23397550/ DECEMBER-OVERSIGHT-REPORT Congressional Oversight Panel. (2010). April oversight report: Evaluating progress on TARP foreclosure mitigation programs. Retrieved from http://www.docstoc.com/docs/34124049/April2010-COP-Report-on-Obamas-Foreclosure-Prevention-Efforts Dash, E. (2009, January 3). Credit card companies willing to deal over debt. New York Times, p. B1. DeNavas-Wait, C., Proctor, B. D., & Smith, J. C. (2010). Income, poverty, and health insurance coverage in the United States: 2009. Washington, DC: U.S. Census Bureau. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Pub. L. No. 111–203. Retrieved from http://www.gpo. gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf Draut, T. (2007). Debt: The new safety net. The American Prospect, 18(5), A25–A26. Eckholm, E. (2010). Recession raises poverty rate to a 15-year high. New York Times, p. A1.
Caputo | Credit Card and Mortgage Debt: A Panel Study, 2004 and 2008
Editorial: The Fed and foreclosures. (2010, November 28). New York Times, p. A24. Editors of Monthly Review. (2000). Working-class households and the burden of debt. Monthly Review, 52(1), 1–11. Emergency Economic Stabilization Act of 2008. Pub. L. No. 110–343. Emergency Housing Act of 1975. Pub. L. No. 94–50. Federal Reserve Bank of New York. (2010, August). Quarterly report on household debt and credit. New York, NY: Author. Retrieved from http://data.newyorkfed.org/research/national_economy/ householdcredit/DistrictReport_Q22010.pdf Federal Reserve Board. (2010a, June 17). Household debt service and financial obligations ratios. Retrieved from http://www. federalreserve.gov/releases/housedebt/ Federal Reserve Board. (2010b, June 25). Mortgage debt outstanding. Retrieved from http://www.federalreserve.gov/econresdata/ releases/mortoutstand/current.htm Foster, J. B., & Magdoff, F. (2008). Financial implosion and stagnation. Monthly Review, 60(7), 1–29. García, J. (2007). Borrowing to make ends meet: The rapid growth of credit card debt in America. New York, NY: Dēmos. García, J. (2008). The new squeeze: How a perfect storm of bad mortgages and credit card debt could paralyze the recovery. New York, NY: Dēmos. Gerardi, K., Lenhert, A., Sherlund, S. M., & Willen, P. (2008). Making sense of the subprime crisis. Brookings Papers on Economic Activity, 2008(Fall), 9–159. Han, C.-K., & Sherraden, M. (2009). Attitudes and saving in individual retirement accounts: Latent class analysis. Journal of Family and Economic Issues, 30, 226–236. Lea, S. E. G., Webley, P., & Levine, R. M. (1993).The economic psychology of consumer debt. Journal of Economic Psychology, 14, 58–119. Menaghan, E. G. (1990, August). The impact of occupational and economic pressures on young mothers’ self-esteem: Evidence from the NLSY. Paper presented at the Annual Meetings of the Society for the Sociological Study of Social Problems, Washington, DC. Pressman, S., & Scott, R. (2009). Consumer debt and the measurement of poverty and inequality in the U.S. Review of Social Economy, 67, 127–148. Rosenberg, M. (1965). Society and the adolescent self-image. Princeton, NJ: Princeton University Press.
Rotter, J. B. (1966). Generalized expectancies for internal versus external control of reinforcement. Psychological Monographs: General and Applied, 80, 1–28. Strocchia-Rivera, L. (1988). Self-esteem and educational aspirations as antecedents of adolescent unmarried motherhood (Unpublished doctoral dissertation). The University of Texas at Austin. Webley, P., & Nyhus, E. K. (2001). Life-cycle and dispositional routes into problem debt. British Journal of Psychology, 92, 423–446. Weller, C. E. (2006). Drowning in debt: America’s middle class falls deeper in debt as income growth slows and costs climb. Washington, DC: Center for American Progress. Retrieved from http://www.americanprogress.org/kf/boomburden-web.pdf Weller, C. E. (2007). Need or want: What explains the run-up in consumer debt? Journal of Economic Issues, 41, 583–591. Weller, C. E. (2010). Economic snapshot for September 2010. Washington, DC: Center for American Progress. Retrieved from http://www.americanprogress.org/issues/2010/09/pdf/ sep10_econ_snapshot.pdf Weller, C. E., & Douglas, D. (2007). One nation under debt. Challenge, 50(1), 54–75. Wheary, J., & Draut, T. (2007).Who pays? The winners and losers of credit card deregulation. New York, NY: Dēmos. Zagorsky, J. (n.d.). Custom weighting program documentation. Retrieved from http://www.nlsinfo.org/pub/usersvc/ CustomWeight/CustomWeightingProgramDocumentation.htm Zezza, G. (2009, January). Flow of funds figures show largest drop in household borrowing in last 40 years. Strategic Analysis. The Levy Economics Institute at Bard College. Retrieved from http://www.levyinstitute.org/pubs/sa_jan_09.pdf
Richard K. Caputo, PhD, professor, Social Policy & Research, and director, PhD Program in Social Welfare, Yeshiva University. Correspondence:
[email protected]; Wilf Campus, Wurzweiler School of Social Work, Belfer Hall, 2495 Amsterdam Ave., New York, NY 10033-3299. Manuscript received: December 20, 2010 Revised: January 24, 2011 Accepted: February 7, 2011 Disposition editor: William E. Powell
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