Do Individuals Use Credit Cards Rationally?

35 Pages Posted: 16 Jun 2017  

Stephen J. Brown

New York University - Stern School of Business

Chris Veld

Monash University

Yulia V. Veld-Merkoulova

Monash University - Department of Finance; Financial Research Network (FIRN)

Date Written: May 30, 2017

Abstract

We survey individuals on their credit card usage. Contrary to popular opinion, most credit card holders use credit cards rationally. These individuals tend to use credit cards for transaction convenience and pay little interest costs. Only a minor subset of people uses credit cards to access expensive credit, with only 7% of credit card holders in our sample never paying the balance in full. Credit card debt is more common among older, less financially literate, and less trusting respondents. Even individuals with credit card debt are well informed about its costs and are likely to make rational decisions about it.

Keywords: Credit card debt, household finance, stock market participation, financial literacy, trust, rationality.

JEL Classification: D14; D91; G11

Suggested Citation

Brown, Stephen J. and Veld, Chris and Veld-Merkoulova, Yulia V., Do Individuals Use Credit Cards Rationally? (May 30, 2017). Available at SSRN: https://ssrn.com/abstract=2986714

Stephen J. Brown

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0306 (Phone)
212-995-4233 (Fax)

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Yulia V. Veld-Merkoulova

Monash University - Department of Finance ( email )

Building H
Caulfield, Victoria 3145
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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