What do Consumers Really Pay on Their Checking and Credit Card Accounts? Explicit, Implicit, and Avoidable Costs

13 Pages Posted: 7 May 2009 Last revised: 17 Jul 2009

Victor Stango

UC Davis Graduate School of Management

Jonathan Zinman

Dartmouth College; Innovations for Poverty Action; Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

Date Written: May 7, 2009

Abstract

We use novel administrative data containing every checking and credit card account transaction made by 917 consumers over two years to measure the total explicit and implicit costs that consumers pay across all of their bank and credit card accounts. In our sample the median household pays $43 in total bank and credit card account costs per month and the 90th percentile pays $257 per month ($3084 per year). For most consumers who pay economically significant costs, credit card interest is the largest component of total costs. For many consumers a large share of costs could be avoided relatively easily: the median panelist could avoid 60 percent of all credit card interest charges, overdraft fees, overlimit and late fees by using different cards at the point of sale, reallocating debt from high-interest to low-interest credit cards, or repaying credit card debt with available checking balances.

Keywords: household finance, credit cards, debit cards, overdraft fees, credit card fees, financial literacy

JEL Classification: D1, D9, G11

Suggested Citation

Stango, Victor and Zinman, Jonathan, What do Consumers Really Pay on Their Checking and Credit Card Accounts? Explicit, Implicit, and Avoidable Costs (May 7, 2009). American Economic Review, Vol. 99, No. 2, 2009; UC Davis Graduate School of Management Research Paper No. 06-09. Available at SSRN: https://ssrn.com/abstract=1400907

Victor Stango (Contact Author)

UC Davis Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Jonathan Zinman

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-0075 (Phone)

HOME PAGE: http://www.dartmouth.edu/~jzinman/

Innovations for Poverty Action

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Jameel Poverty Action Lab

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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