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An investigation of credit card holding, borrowing, and payoff

Jiang, Saihong
http://rave.ohiolink.edu/etdc/view?acc_num=osu1177862213

Abstract Details

2007, Doctor of Philosophy, Ohio State University, Economics.
The widespread use of credit cards has challenged the traditional lifecycle hypothesis and introduced new uncertainties into U.S. financial markets. Based on a set of new survey data, this dissertation empirically investigates two critical issues in the credit card market: 1) the lifecycle borrowing and payoff profiles of credit card revolvers adjusting for cohort effects, 2) the underlying determinants of consumer choices regarding holding, borrowing, and payoff on credit cards. Due to data limitations, most previous studies analyzed consumer debt in a static or comparative static context. Using a synthetic cohort approach, this research tracks the changing behavior of credit card borrowing and payoff in a lifecycle framework for different birth cohorts observed in a time series of cross sections. A two-way fixed effect, pseudo-panel data model is proposed to disentangle cohort effects from age and time effects and to estimate the cohort-adjusted profiles. The fitted profiles show different patterns from the unadjusted cross-sectional profiles implied by the simple lifecycle hypothesis. The results suggest that younger American consumers are borrowing more heavily and repaying at lower rates on credit cards than older generations. If the current borrowing and repayment habits persist, a substantial buildup of credit card debt at a later period in life may jeopardize the financial well-being of the elderly and cause instability in the credit card market. For effective policy-making and regulation in consumer finance, it is necessary to understand the underlying determinants of consumer behavior in credit card holding, borrowing and payoff. This study examines a variety of factors, including credit related variables, socioeconomic variables, and expectations variables, in determining household behavior related to credit card use. Specifically, the analysis focuses on three aspects of consumer choices: 1) credit card ownership, 2) credit card borrowing, and 3) determinants of credit card debt and payoff rates. Analyzing credit card debt and payoff rates in the context of ownership and borrowing choices helps to provide an understanding of how consumers maximize utility by switching between different roles, and allows us to look at consumer behavior in the credit card market from a broader perspective.
Lucia Dunn (Advisor)
synthetic cohort; lifecycle; credit card debt; payoff rate

Recommended Citations

Citations

  • Jiang, S. (2007). An investigation of credit card holding, borrowing, and payoff [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1177862213

    APA Style (7th edition)

  • Jiang, Saihong. An investigation of credit card holding, borrowing, and payoff. 2007. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1177862213.

    MLA Style (8th edition)

  • Jiang, Saihong. "An investigation of credit card holding, borrowing, and payoff." Doctoral dissertation, Ohio State University, 2007. http://rave.ohiolink.edu/etdc/view?acc_num=osu1177862213

    Chicago Manual of Style (17th edition)

osu1177862213
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© 2007, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.