At about the same time the Federal Reserve Bank of New York discussed a study about how debtors prioritize debts when money is tight, another Federal Reserve branch, in Boston, published a paper asking whether unemployment leads to increased credit-card use. The short answer is a surprising no. It turns out that rather than run up debts to try and stay afloat, the unemployed stay away from their credit cards. The finding suggests that unemployed people mitigate potential bankruptcy filings by changing their behaviors.
To explore how unemployment affects credit-card use, the researchers used data from the Survey of Consumer Payment Choice, which measured about 2,300 people who were active in the labor market from 2008 to 2014. More than 350 of these people experienced a job loss at some point during that period, and the authors focused on their credit use in the year prior to their unemployment. They also investigated just who the unemployed are—a worthwhile question in itself.
People who were unemployed around the time of the Great Recession differed quite a bit from those who kept their jobs throughout the survey period. The unemployed participants tended to be younger (in the 18-35 age range), and their prior incomes were much lower to begin with (less than $25,000 annually). The unemployed respondents were also less likely to be white or married. Their banking habits differed from the norm as well because they tended to be unbanked and not have credit cards at all.
When it came to how the unemployed respondents paid their bills, cash and debit cards dominated compared to those who had worked throughout the survey period. Meanwhile, 25 percent of employed respondents reported using credit cards, as opposed to 15 percent of unemployed participants.
Importantly, although the authors found clear demographic differences between respondents who reported some periods of unemployment and those who did not, the unemployed respondents’ payment behaviors didn’t change much once they were unemployed. In other words, respondents who had credit cards before losing their jobs didn’t stop using their credit cards. Conversely, they did use their credit cards somewhat less, discrediting the notion that people run up large bills and then file bankruptcy when they’re in over their heads.
The Boston Fed study is here.
Whether you’re employed or not, if you are experiencing financial difficulties, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.