25 Years of Data on Credit Card Use Among U.S. Households Who Receive Social Welfare

Background: When households experience an economic shortfall or face a financial emergency, a variety of strategies are available to make ends meet, including borrowing money or accessing social welfare programs. Increasingly, credit cards serve as a way for households to maintain consumption during economic challenges or to meet unexpected financial emergencies. Several decades ago, it was difficult for those with a modest salary to secure a credit card. During the 1990s and early 2000s this changed, as credit markets for low- to moderate-income (LMI) households grew considerably, even among households that were also receiving social welfare. Despite a body of research documenting credit card use and debt among socially and economically vulnerable households, there is little research about households that receive social welfare benefits and simultaneously carry credit card debt. We address this gap by investigating several questions: 1) What percentage of LMI households receiving social welfare have access to a credit card? 2) How much do credit card-owning LMI households owe, and are there differences between those who do, and do not, receive social welfare? 3) Among LMI households, does credit utilization—the percentage of the household’s credit limit that was actually used—differ for social welfare recipients?

Method: We investigate these questions using triennial cross-sectional Survey of Consumer Finances (SCF) data from 1995 to 2022. The Federal Reserve Board’s SCF is often used by researchers who study debt, especially changes in debt levels over time, because they allow for nationally-representative cross-sectional comparisons every three years.

Results: We find that over nearly three decades, an average of 60% of LMI households that did not receive social welfare owned a credit card, compared to 28% of social welfare recipients. This difference, which ranged from a low of 29 percentage points in 2019 to 38 percentage points in 1995, was significant across all survey years. In inflation-adjusted dollars, across all years, households that received social welfare reported lower credit card debt than households that did not receive social welfare. However, social welfare recipients had significantly higher credit utilization ratios than households that did not receive social welfare. This higher credit utilization held across all years except for 1995, ranging from a low of approximately 28% in 1995 and 2016 to approximately 67% in 1998. Despite these differences in credit card debt and utilization, both recipient and non-recipient households exhibited similar patterns regarding credit card ownership, nominal debt level, and credit utilization over most of the study period. Notably, there was an increase in all three indicators in the years leading up to the Great Recession, followed by a decline in all three indicators.

Discussion: From this historical perspective offered by twenty-seven years of descriptive evidence, we pose several questions intended to improve future research and practice related to meeting ongoing consumption needs, emergency expenses, access to traditional credit markets, and revolving credit card debt among households receiving social welfare.