Determinants of credit card spending and debt of Chinese consumers

Abstract

Purpose The rapid growth of credit card use in China poses the potential for card overuse and the accumulation of increased debt. The purpose of this paper is to report on an investigation into the determinants of overall credit card spending and card-financed debt by Chinese consumers. Design/methodology/approach This study focusses on two dependent variables: credit card monthly spending and card debt. The spending measure is based on consumer outlay for the month preceding the survey. Card debt is the consumers’ outstanding credit card debt when the survey was conducted. Three groups of independent measures are used: socio-demographic characteristics, card features and consumer attitude towards money. Both card spending and card debt are estimated with OLS methods. Data was obtained from the 2013 China Household Finance Survey of 1,920 households in 29 provinces and 262 counties across China that used credit cards over the survey period. Findings The empirical findings suggest consumers’ attitude towards money is more important in explaining card spending and debt variation than socio-demographic characteristics and card features. The credit limit set for a card, obligations to other loans and the method of paying for ordinary shopping exhibit positive effects on both card spending and card debt, while age exhibits a negative effect. Further, card spending is positively correlated with card debts, but the factors that determine card spending do not necessarily affect card debt and vice versa. Minimum card debt payments, cash advances, card tenure and interest-bearing debt have no effect on card spending but have positive effects on card debt. In addition, gender and income have opposite effects on card spending and debt. Practical implications The relationships we have documented suggest several actions the Chinese Government could consider dealing with credit card debt risk. Controlling the aggressive promotional campaigns that card issuers use to attract consumers and aggressive credit policies should be a focus of attention. The Chinese Government might, for example, impose minimum age and income requirements for granting credit cards and prohibit issuance of new cards to applicants who are already in debt with other types of credit. In addition, more stringent criteria to curb increases in card limits and tighter control over cash advances made on cards should be applied. Minimum payment amounts can also be increased in order to reduce credit card debt risk. Originality/value Despite ample documentation of consumers’ credit card behaviour, the literature is deficient in at least two areas of enquiry. First, most previous research has investigated either credit card spending behaviour or card debt, but not both. Second, with few exceptions, most research has investigated a range of specific factors that affect credit card use. In contrast, this study investigates card spending as well as card debt behaviour using a wide variety of consumer dimensions particularly relevant to credit card use and resulting debt. In addition, this study focusses on Chinese consumers, who traditionally prefer to save first and delay spending. The impact of the rapid growth of credit card use on this traditional Chinese orientation towards spending is dynamic. Documenting the influence of the individual factors examined in this study is likely to be of value to both policy makers and institutions that offer and manage credit in this changing environment.

Financial literacy, money management skill and credit card repayments

“…Allgood and Walstad (2013); Barboza et al. (2017); Lin, Revindo, Gan, and Cohen (2019) and Mottola (2013) show that these variables may have a bearing on credit card repayment behaviour. In line with Barboza et al.…”

Household’s Overindebtedness during the COVID-19 Crisis: The Role of Debt and Financial Literacy

“…Demographic factors also significantly influence the tendency to overindebtedness. Lin et al (2019) found that men are more favorable to debt than women. In the age terms, young people under 30 are more disrespectful of debt compared to people over 45 (Keese 2012;Sevim et al 2012).…”

Determinants of Indebtedness: Influence of Behavioral and Demographic Factors

“…Moreover, risk perception differs based on individual occupations, income, religion, marital status, and level of education (Keese 2010). Ponchio (2006) and Lin et al (2019) focused on the relationship between demographic factors and debt, and identified that men are not more favorable to debt than women are. Younger people tend to perceive their debt burden as significantly lower, whereas those over 45 years are more likely to have a higher debt (Daud et al 2019;Keese 2010).…”