Marriage between credit cards and the Internet: Buying is just a click away!

• Date: 01 July 2018
• Author: Ficawoyi Donou‐Adonsou,Hem C. Basnet
• DOI: http://doi.org/10.1002/rfe.1019
• Published date: 01 July 2018

ORIGINAL ARTICLE

Marriage between credit cards and the Internet: Buying is just a

click away!

Hem C. Basnet

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Ficawoyi Donou-Adonsou

2

1

Methodist University, Fayetteville, NC,

USA

2

John Carroll University, University

Heights, OH, USA

Correspondence

Hem C. Basnet, Methodist University,

Fayetteville, NC, USA.

Email: hbasnet@methodist.edu

Abstract

This paper examines whether Internet access positively affects credit card balances.

To that end, we compare the 2010 and 2013 Surveys of Consumer Finances, analyze

the consistency of theresults over time, and provide the rationale for any resultingdif-

ferences. Using the censored techniques, our results indicate that Internet access has a

positive effect on credit card balances, which suggests that consumers with Internet

access are prone to higherbalances compared to those without. The probability of car-

rying positive balances was larger in 2010 compared to 2013. Overall, the results sug-

gest that, while the financial crisis might have contributed to higher balances in 2010,

the economic recov ery afterward seems to have eased the burden of credit c ard debt.

JEL CLASSIFICATION

G20, G21

KEYWORDS

consumer finances, credit card balance, e-commerce, online shopping

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INTRODUCTION

In recent years, both credit card ownership and Internet accessibility have increased. By 2014, the Federal Reserve Bank

noted that 72% of U.S. households owned at least one credit card. The average credit card debt per indebted househo ld

was $15,779 as of 2015, for a total outstanding debt of $938.8 billion (Federal Reserve, 2016). In 2012, the demand for

consumer credit card grew by 21.4%. Likewise, the Internet has become integrated into everyday life among American

households. For example, the Pew Research Center reported that 84% of households had Internet access (up from 52% in

2000). More importantly, the popularity of smartphones has greatly increased Internet access. Meanwhi le, demand for credit

cards has grown in tandem with the widespread use of Internet-enabled devices.

This study aims to examine whether households with Internet access have more favorable attitudes toward incurring lar-

ger credit card balances. To that end, we hypothesize that the Internet contributes to higher credit card balance. Since the

Internet provides easy, fast, and instant access to shopping, the temptation to spend money is harder to resi st, resulting in

more debt. To test our hypothesis, this study utilizes the 2010 and 2013 Surveys of Consumer Finance (SCF).

1

In doing

so, we separated the Internet effect after isolating the effects of other explanatory variables (i.e., education, income, gender,

etc.). Basnet and Donou-Adonsou (2016) investigated the issue using the 2013 SCF. In this paper, we exploited their results

and compared them to those of the 2010 SCF. Our focus is to analyze the net effect of Internet over time and offer some

plausible explanations for any observed differences.

The Federal Reserve Board’s triennial Survey of Consumer Finances collects information about U.S. household income,

credit use, and many other financial outcomes. The 2010 survey was selected because the country was experiencing its

worst economic recession since the Great Depression. A negative GDP growth rate couple d with double-digit unemploy-

ment during the 2010 survey may have led many millions of families into debt, meaning the Internet may not be the

Received: 8 November 2017

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Revised: 3 February 2018

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Accepted: 15 February 2018

DOI: 10.1002/rfe.1019

252

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©2018 The University of New Orleans wileyonlinelibrary.com/journal/rfe Rev Financ Econ. 2018;36:252–266.