Credit Card Spending and Borrowing since the Start of the COVID-19 Pandemic

The document titled "Credit Card Spending and Borrowing since the Start of the COVID-19 Pandemic" by Joanna Stavins, published as part of the Current Policy Perspectives series on October 19, 2023, provides a comprehensive analysis of credit card usage trends during and after the COVID-19 pandemic. Key points from the document include:

1. Early Pandemic Trends: Initially, consumers improved their financial health during the early stages of the pandemic. This was characterized by a reduction in credit card spending and a decrease in revolving credit card debt.

2. Post-2021 Changes: Starting from the second quarter of 2021, credit card spending began to increase again. By the end of the second quarter of 2023, credit card balances exceeded $1 trillion, and the number of open accounts grew significantly. This period also saw an increase in revolving balances and delinquencies.

3. Data Analysis: The paper uses Y-14M credit card account data up to July 2023 to analyze changes in credit card spending, revolving balances, and delinquencies. This analysis highlights a sharp rise in delinquencies, especially among lower-income consumers.

4. Impact on Lower-Income Consumers: Lower-income cardholders experienced a faster rise in credit card revolving balances and delinquencies compared to other income groups, signaling increased financial stress. These trends suggest that excess savings accumulated during the pandemic are being depleted more rapidly among this group.

5. Average Credit Card Balances: The average balance on all credit card accounts initially dropped but later rose above pre-pandemic levels. Delinquent accounts also saw a rise in average balances.

6. Utilization Rates: Utilization rates (the ratio of outstanding balance to credit limit) have returned to pre-pandemic levels. This is particularly high among lower-income consumers, limiting their financial flexibility.

7. Potential Future Risks: The document outlines several factors that could exacerbate financial stress in the near future, such as a possible economic recession, the end of the student loan forgiveness program, and rising credit card annual percentage rates (APRs).

8. Policy Implications: The analysis provides insights into consumer behavior and financial health, offering valuable information for policymakers and financial institutions.

This summary provides an overview of the document’s main points, reflecting the changing landscape of consumer credit card use and financial health in the context of the COVID-19 pandemic and its aftermath.

Source: https://www.bostonfed.org/publications/current-policy-perspectives/2023/credit-card-spending-and-borrowing-since-the-start-of-the-covid-19-pandemic.aspx