Revolvers—households that typically pay less than the full balance on their monthly credit-card bill—represent the icing on the cake for credit-card issuers. Of the 128 million economic households in the United States, 91.9 million have at least one credit card, and 44% of them (39.5 million households) revolve their credit-card balances—turning what amounts to an interest-free loan into a debt on which they must pay interest. In the past decade, the proportion of credit-card users who revolve their balances has declined from a high of 54% in 2000 to 45% in 2010. In year 2000, just 42% of credit-card holders were pay-in-full households—households that pay off their accounts each month. In 2010, fully half of card owners are pay-in-full households. The incidence of Revolvers has remained near its ten-year low (43% in 2008) since 2006.

Demographics

• Revolvers' average age is 49—slightly younger than the national average for credit-card holders (52) and substantially younger than that for their pay-in-full counterparts (56).
• Revolvers' average income ($70K) is significantly lower than that of all credit-card-owning households ($79K) and much lower than that of pay-in-full households ($88K).
• Revolvers (66%) are somewhat more likely than pay-in-full households (54%) to lack a four-year college degree, about equally likely to have a four-year degree (25%, in comparison with 28%), but much less likely to have a master's degree or higher (9%, in comparison with 19%).
• Revolvers (35%) are much more likely than pay-in-full households (24%) to have dependent children.
• Among Revolvers, one in three are single-headed households (never married, divorced, or separated), in comparison with one in four among the pay-in-full group. Revolvers are much less likely to be widowed (4%) than pay-in-full households (12%) and slightly less likely to be married (51%, in comparison with 58%).

Products and Services and Financials

• Assets. It is not surprising that Revolver households are significantly less likely than pay-in-full households to own savings and investment products like CDs, money market deposit accounts, mutual funds, stocks, and bonds. Although Revolvers (36%) are much less likely than pay-in-full households (63%) to have an IRA, the incidence of owning a salary-reduction plan—401(k), 403(b), or 457 plan—is virtually the same (51%, in comparison with 53%), and the incidence of business ownership for both groups is about 12%.
• Online accounts. It is perhaps surprising that Revolvers (74%) are significantly more likely than pay-in-full households (66%) to use internet banking. Use of internet investing, by contrast, shows a sharper divide, with just 16% of Revolvers, in comparison with 28% of pay-in-full households, investing online.
• Debit cards. Revolver households (90%) are far more likely than pay-in-full households (70%) to own a debit card.
• Debts. The most relevant debt number for this report is the aggregate total for the household's monthly credit-card bill(s). For Revolver households, the average monthly credit-card balance is $9,500, in comparison with $2,300 for households that pay off their credit-card bill(s) each month. The two groups' average debt levels for first-mortgage loans, home equity lines of credit, and vehicle loans are virtually the same.
• Net worth. With relatively low total-assets balances—in comparison with those of pay-in-full households—Revolvers start with a distinct disadvantage in the net worth calculation. The fact that total liabilities for Revolvers are substantially higher than those for pay-in-full households explains the difference in the financial positions of the two groups: The mean ($202.8K) and median ($82.6K) net worth for Revolvers is worlds lower than the mean ($736.8K) and median ($354.8K) net worth of pay-in-full households.
• Insurance. Except for a slightly lower incidence of homeowners/renters insurance, Revolvers' ownership of most insurance products is virtually the same as that for pay-in-full households. Overall, the proportion of each group owning life insurance is about the same: 78% of Revolvers and 74% of pay-in-full households own some kind of life insurance. But Revolvers are more likely to own group life insurance, especially through their employers, whereas pay-in-full households (51%) are significantly more likely than Revolvers (44%) to own an individual life insurance policy.

Financial Attitudes That Differentiate Revolvers

Attitudinally, the Revolver and the pay-in-full groups are polar opposites. Of 29 characteristics that derive from 123 distinct financial attitudes, 7 of the top 10 characteristics that define Revolvers fall into the bottom 10 that define pay-in-full households. Although they are aware of their fragile financial condition, Revolvers are knowingly willing to spend beyond their means, ignore the cost of borrowing, and resist developing a budget. The result is a high level of expressed concern about the future and a high level of resentment toward financial institutions.

Implications

The fact that fewer households are currently revolving their credit-card balances is evidence that consumers are increasingly aware of the need to save more and spend less. The wide gap in financial resources between Revolvers and households that pay down their cards each month creates two distinct markets: one focused on convenience and rewards, the other focused primarily on interest rates and fees. The challenge of monitoring spending habits and creditworthiness is increasing. When we examine Revolvers on the basis of the amount currently owed on credit cards, we see that the Revolver segment is a highly dynamic population, with a higher portion owing more and a higher portion owing less than they did a year earlier. The evidence suggests that Revolvers, too, are paying down their debt at an increasing rate. In combination with new regulations about disclosure of information on interest rates and charges, this pay-down practice could affect profit margins for subprime providers. More than ever, keeping track of consumers' changing needs is critical.

For more information, contact CFD.