Consumer Borrowing Among Social Assistance Recipients

Over the past thirty years, as the rise in the cost-of-living has outpaced earnings, growing numbers of people have acquired debt to make ends meet.  At the millennial turn, credit markets for disenfranchised people expanded rapidly, with credit cards being newly available to people with bad or no credit.  Research on social assistance recipients and their use of consumer credit is virtually non-existent.   While previous research found that people on welfare are more likely to carry credit card balances compared with other low-income families, the results were not nationally representative. This study asks, “What are the patterns of credit card ownership and debt among recipients of social assistance benefits over the past 20 years in the United States?”

The study employs a cross-sectional design using descriptive statistics and logistic regression.  Data comes from the Survey of Consumer Finances (SCF), a cross-sectional nationally representative dataset produced every three years and sponsored by the Federal Reserve Board. It is a dataset of choice for researchers who study financial behavior.  The SCF suffers from missing data and uses a multiple imputation technique, resulting in five complete implicates which have been examined in this study. Analyses have also included sample weights to adjust for unique design aspects of the SCF.  The study analyzes seven surveys from 1992 to 2010.  The primary explanatory variable is “receipt of social assistance”, measured categorically as participation in means-tested programs, such as TANF, SNAP, and SSI.  The two outcome variables of interest are “credit card debt”, measured as the total amount owed on revolving credit cards, gasoline, and non-revolving charge cards, and “ownership of credit cards”, which is measured categorically.  Limitations include the distorting effect of social desirability in survey data, and that cross-sectional data obscures longitudinal patterns. 

The study finds that ownership of credit cards and credit card debt by social assistance recipients rose steadily from 1992 to 2010, with both peaking in 2007 before the financial crisis, and declining thereafter. Ownership of credit cards in this group increased from 23.3% in 1992 to 32.4% in 2007, and then dropped to 24.6% in 2010.  The probability that a social assistance recipient owned a credit card was 9.3% (p < 0.001) in 1992; this crested at 14.6% (p < 0.001) in 2004, and dropped to 11.8% (p < 0.001) in 2010.  Social assistance recipients had an average of $221 of credit card debt in 1992 and $583 in 2010.  The standard deviations increased drastically in each survey during the 2000’s, with the uppermost deviation reaching nearly $24,000.00 in 2007.  

There are two distinct but related implications for social work.  First, this study suggests that people on means-tested social assistance programs are integrating in mainstream borrowing mechanisms, which could be evidence of economic inclusion. Conversely, consumer debt can burden an already constrained budget in a household that relies on welfare.  In both cases, social workers and researchers are uniquely poised to develop effective ways to build financial capabilities with people in this population.