"It Takes a Village": Community-Level Explanations of Young Adults' Credit Card Debt

Background & Purpose: Although today's young adults are somewhat more reluctant to use credit cards than a decade ago, their credit card use remains a concern given their increasing overall indebtedness. Indebtedness can follow young adults for years and, if left unpaid, has the potential to hinder their abilities to save or lower their credit scores. Research often points to individual- or household-level factors to explain credit card use, suggesting that young adults might be less likely to use credit cards or accumulate burdensome amounts of credit card debt if they were better able to delay gratification or better educated on the costs of debt. Moreover, they might be less likely to use or accumulate this debt if provided with the right financial socialization and training within their household. This paper expands on existing research by testing another explanation of young adults’ credit card debt: that credit card use may emerge from community-level contexts in which opportunities for financial inclusion and access to credit exist and individual- and household-level financial socialization take place. 

Methods: This study used survey data collected over a five-year period from a young adult college cohort. First-year students, enrolled full-time at a major, 4-year public university in the United States, completed an online survey during spring 2008 (W1) and again in 2009 (W2), 2010 (W3), and 2013 (W4). Of the original sample (N = 2,098), 748 students provided information at both W1 and W2 and 499 provided information across all four waves. Using information from W1 and W2, the probability of acquiring credit card debt and the value of log-transformed accumulated credit card debt were analyzed using Cragg’s double-hurdle models. Using information from all four waves, repeated measures latent class analysis (RMLCA) identified trajectories of credit card debt accumulation. Individual- and household-level demographic factors were controlled (e.g., race, gender, GPA, parents’ household income, parents’ financial socialization). Community-level factors measured at the zip code level included bank branch density, household total debt, credit score, and unemployment rate.

Results: Twenty-seven percent of college students reported using credit, carrying an average balance of $157. The average total household debt of the communities in which they lived prior to college enrollment was negatively associated with their credit use, suggesting that students from higher debt communities were less likely to become leveraged themselves. Higher unemployment rates and more bank branches were risk factors for credit card debt, whereas the average credit score of the community was a protective factor. Three trajectories of credit card debt accumulation emerged (early substantial [16%], delayed substantial [14%], late gradual [70%]), with community-level factors relating to the ways in which college students accumulated credit card debt over time.

Conclusions: An important contribution of this research is the finding of a significant relationship between college students’ credit card debt and community-level factors that represent opportunities for financial inclusion and access to credit. In addition to individual- and household-level factors, research and policy should consider how community contexts shape the use and accumulation of credit card debt.