Who Is in Debt? a Class Based Analysis of Consumption on Credit

This paper uses the Survey of Consumer Finances to examine factors influencing the indebtedness of U.S. households in 2010. In particular, the role of structural constraints, institutional conditions and cultural forces on indebtedness are assessed. Two central questions motivate this work. First, what drives household debt—is it economic vulnerability, a culture of debt or status based consumption? Second, how does the impact of structural and cultural forces on indebtedness vary by class position? Results from one set of analyses illustrate that cultural, structural, and institutional forces are embedded in how households deploy their credit.  A norm of debt acceptability predicts increased indebtedness, while status based consumption is uncorrelated with debt. Economic shocks in the face of insufficient asset holdings are predictive of more debt. Findings from the second set of analyses indicate that class position engenders significant variation of not just structural factors (income liquidity and net wealth), but institutional (state transfers) and cultural ones (attitudes and status) on household consumption. Two relatively new norms—one of virtuous investment, and a second of credit acceptability—interact with growing inequality to pattern households’ consumption of credit according to social class membership. Specifically, I find that only the upper and upper middle classes use credit in the service of status-based consumption. However, the upper class also uses credit to engage in financial investment in the service of wealth creation. At the same time, the middle classes invest on credit in ways that may insulate households against future economic insecurity. Lastly, the working class and poor deploy their credit in the service of either defensive spending or to attain socioeconomic mobility.