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MAXED OUT: THE RELATIONSHIP BETWEEN CREDIT CARD DEBT, CREDIT CARD DISTRESS AND GRADE POINT AVERAGES FOR COLLEGE STUDENTS By Temple Day Smith A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Sociology 2011 ABSTRACT MAXED OUT: THE RELATIONSHIP BETWEEN CREDIT CARD DEBT, CREDIT CARD DISTRESS AND GRADE POINT AVERAGES FOR COLLEGE STUDENTS By Temple Day Smith Few students leave college with a plan for paying off their debt. Starting a career inundated with student loans and credit card debt burdens is a reality many college students face today. In the wake of graduation coming to terms with the consequences of credit card debt is stressful for many students. This dissertation observes the relationship between distress, credit card debt, and grade point averages for college students. Evidence suggests that there is a debt culture among college students that varies by income. Debt culture refers to the tolerance levels students have regarding credit card debt. Among economically advantaged college students, this study demonstrates that status consumption encourages purchases to gain peer recognition and social prestige. While disadvantaged college students illustrate patterns of survival borrowing. Borrowing from credit cards to meet basic needs such as clothing and textbooks. Findings from this study illustrate that having credit card accounts in collection increases distress and negatively affects grade point averages. Secondly, that family income is a significant predictor for grade point averages and financial literacy. Students who have higher family incomes report higher grade point averages, and are less likely to have accounts in collection. ACKNOWLEDGEMENTS Everyone reads the dissertators acknowledgements. For this reason and for those who have helped me I wanted to write acknowledgements that captured (well) how grateful I was for the gracious support I received from so many. Faculty, family, and friends have helped me complete this dissertation. I am also indebted to the National Institute of Mental Health and the American Sociological Association for the opportunities and funding support I received as a Mental Health Fellow in the Minority Fellowship Program. The faculty of this department has provided me a most excellent graduate education. They have set the bar high for me as a new social scientist. The superlative examples of my committee have taught me how to think like a sociologist, develop capacity for sociological research, and translate the uniqueness of my ideas into clear scientific writing. I am grateful for everything they taught me and everything I learned by watching. They are all well deserving of special recognition. Dr. Broman has been a good advisor to me throughout my entire graduate school career. I wandered in his office as an 19 year old undergraduate seeking an independent study, and had no idea that over a decade later I would continue to visit his office as a graduate student. Under his mentorship I learned how to design rigorous college level courses, and voice with clarity my academic voice. He has been a world class advisor, drill sergeant, coach, mentor and now a friend. The purplest of prose could not describe how grateful I am to have had the opportunity to work with such a brilliant scholar. He has been a cheer leader of my abilities when initially I wasn t sure that I was smart enough to pursue a doctorate degree. At 19 he saw potential and today the world sees a doctor. I am glad that he encouraged me to apply to graduate school and more importantly that he mentored me. iii Dr. Gold has to be the most articulate, and fascinating professor I have ever met. Dr. Gold is fun to listen to, his academic insights are always relevant, smart, and fresh. Dr. Gold has given me great advice and assistance whenever I talked with him, especially regarding post graduation life and my plans. He is administratively timely, warm, and kind. Dr. Gold s last name suits him well, for truly he has a heart of Gold. Dr. Zhang is the kind of Professor you pray will say yes to being on your committee. She is bionically brilliant and organized. Dr. Zhang is a quantitative genius and modeled a good example of the type of skill set I hope to possess one day. In the short time that Dr. Zhang mentored me she has had an enormous impact on not only the quality of this dissertation but the way I approach research in the social sciences. I am grateful that she was apart of my committee. Dr. Canady has been an invaluable source of support and guidance for me personally and professionally. I have her to thank exclusively for being such a refuge in stormy hours when you feel like giving up. She helped me overcome many stressors germane to writing a dissertation. I appreciate her so much for spending time with me and for opening up her home to me on so many occasions. Her sound thinking, excellent cooking, and good advice have meant so much to me. Dr. Canady has been so helpful during many crucial decision-points in my life. I thank God for her spiritual gravity and Christian example. She has shown me how to have an uncompromised ethical back bone. Proverbs 31:10 says who can find a virtuous woman? It is too bad the writer didn t know Dr. Candy. My sister Kim has been amazing through this entire process. Kim is a wonderful example of grace and good humor. I hope one day in the future I can be for her, what she has always been for me. She has been an ideal big sister, everyone should be as fortunate to have a iv sister like Kim. I am so grateful for her without her support, I may have never finished this dissertation. I owe my brother Aaron big. He has made countless breakfasts, dinners, and went above and beyond to ensure that while in college his financially disadvantaged little sister, could afford a few extras. Many have brothers that is just a male sibling. But not everyone has a big brother (that is something special) especially the one that I have. Valerie and Jerri Nilson have literally been there from start to finish. To my very first week of college until my doctoral graduation day. Val quite possibly will never know how intense an impact she has made on my life, partly because I am not sure how I could ever put that into words. She has taught me poise, tact, and what thoughtfulness really means. She has shown me that big things happen when you do the little things right. When J.M. Barrie wrote, Always try to be a little kinder than is necessary, he undoubtedly had been studying Val. I have always told Cindy Humes that she deserves an award. My graduate career is filled with memories of all the sweet and thoughtful things she has done for me. Whether it was bringing a plate of food covered in aluminum foil to the library in the middle of the night, listening to my endless rants about graduate school, or offering a good word at the right time, and a big hug. Her love and support has made a profound difference in my life and I am grateful to be her spiritual daughter. My friends LaToya Brown-Evans, Tamira Cason-Chapman, Doris Reynolds, LaToya Murphy, Tonisha Lane, and Geneva Thomas provided countless hours of comic relief, listening ears for venting, interest in my work, and were there when I needed them most. v For keeping your promises, for your loving kindness, for being a present help in the time of trouble for all this and so much more I give you praise and thanks, Jesus Christ, my Lord and Savior. English writer Thomas Paine once wrote, the harder the conflict, the greater the triumph. This quote aptly captures the excitement, exhaustion, frustration, and joy this project has brought me. I have finally triumphed! Indeed. vi TABLE OF CONTENTS LIST OF TABLES... ix LIST OF FIGURES... xi CHAPTER 1 INTRODUCTION... 1 Statement of the Problem... 6 Significance of the Study... 7 CHAPTER 2 LITERATURE REVIEW... 8 Credit Card Exposure for College Students Status Consumption Financial Literacy CHAPTER 3 METHODS Recruitment: Use of Questionnaire Interview Sample Selection Characteristics of the Sample Sources of Data Questionnaires Measures and Reliability Scale reliability and items used in each scale Financial literacy Credit card distress Credit card debt Interviews Data Analysis CHAPTER 4 RESULTS Qualitative Findings Theme 1: Low Levels of Financial Literacy Theme 2: Status Consumption: Students Reported That Spending on Large Ticket Clothing Items to Gain Peer Recognition Is Important Theme 3: Anticipatory Spending: Students Reported Using Loan Refunds to Repay Accumulated Credit Debt Incurred During the Semester vii CHAPTER 5 CONCLUSION Discussion Limitations Future Research APPENDIX REFERENCES viii LIST OF TABLES Table 1. Descriptive Statistics for the Sample Table 2. Family Income Table 3. Credit Card Debt Table 4. Grade Point Averages Table 5. Credit Card Ownership Table 6. Credit Card Balances Table 7. Father s Education Table 8. Mother s Education Table 9. Race Table 10. Regression Analysis of Credit Card Debt and Credit Card Distress Table 11. Regression Analysis of Credit Card Debt, Family Income and Credit Card Distress Table 12. Regression Analysis of Credit Card Debt, Family Income and Credit Card Distress Table 13. Regression Analysis of Credit Card Debt, Family Income, Race, Parent s Education, Credit Card Balances and Credit Card Distress Table 14. Regression Analysis of Credit Card Debt, Family Income, Race, Parent s Education, and Grade Point Average Table 15. Regression Analysis of Family Income, Race, Parent s Education, and Credit Card Balance Table 16. Regression Credit Card Debt, Family Income and Race Table 17. Regression Analysis of Family Income, Race, Parent s Education, and Credit Card Balance Table 18. Regression Analysis of Credit Card Debt, Family Income, Race, Parent s Education, Interaction of Income and Credit Card Debt and number of Credit Cards ix Table 19. Regression Analysis of Credit Card Debt, Family Income, Race, Parent s Education, Interaction of Income and Credit Card Debt, Credit Card Balance and Credit Card Distress Table 20. Regression Analysis of Credit Card Debt, Family Income, Race, Parent s Education, Interaction of Income and Credit Card Debt, Number of Credit Cards and Credit Card Distress Table 21. Face-to-Face Interview Participants x LIST OF FIGURES Figure 1. Collection consequences for missed credit card payments Figure 2. Estimated point deductions from credit score given certain financial events Figure 3. Relationship between financial literacy, income, credit debt, distress and grade point averages Figure 4. Credit card distress xi CHAPTER 1 INTRODUCTION This dissertation examines credit card debt, credit card distress and grade point averages for college students. In recent years, there has been a dramatic increase in credit card use among college students (Lyons, 2004; Wells, 2007). Increased credit card use among college students has generated concerns that student s credit card behavior is putting them at greater risk for high debt levels and misuse and/or mismanagement of credit after graduation (Lyons, 2004; Hoffman, McKenzie & Paris, 2008). The analysis of this dissertation examines how undergraduate college students are handling debt accumulated through credit card usage, and how the strain of collection efforts impacts both emotional well being and grade point averages. It is necessary to clearly define the terms used in this study. Credit card debt refers to money owed on credit cards that has not been paid. Credit card distress refers to the emotional disturbance student borrowers feel when they cannot pay credit card bills (for example, I have cried about the bills I owe ; I spend a lot of time thinking about my credit card bills ). Lastly, this study examines the grade point averages of students with accounts in collection. Studying the ways students handle credit card debt is important because improperly managed credit has many negative outcomes for college students while in college and after graduation. There are numerous reasons exploring the credit card debt of college students is crucial. A few reasons are discussed here, while the literature review in chapter two goes into further detail. Research on college student credit card debt is needed because credit card debt has become a serious distraction impairing concentration needed to study (Hayhoe, Leach, Turner, Bruin, & Lawrence, 2000). When a student has a delinquent account and creditors begin collection practices, these practices (phone calls, payment letters, etc) hinder a student s ability to give full attention and concentration to studies. Prolonged distractions caused from collection 1 efforts has also been linked to students working longer hours to pay off debt, missing classes, and ultimately deciding to quit school, such behaviors and decisions affect college student retention rates (Hayhoe et al.,2000; Joo, Durband, & Grable, 2008; Allen & Jover; 1997 as cited in Lyons 2004). Improperly managed credit card debt also impacts credit scores, limiting a student s hiring potential in certain fields effecting post graduation employment opportunities (Wells, 2007; Manning, 2002). The accumulation of credit card debt is also affecting the disposable income of college student s families (Lyons, 2004; Norviltis, Szablicki & Wilson; Asinof & Chaker, 2002). While literature has confirmed that the consequences of improperly managed credit are dangerous for college students, literature has not offered sound explanations for why certain students are more vulnerable to credit card debt than others. Overall, literature has offered only surface level explanations cloaked in a language of personal responsibility to delineate why some students incur unmanageable credit card debt loads while others do not. Implied in the literature is a belief that credit card spending and the resulting debt are consequences of individual choices, and credit card debt is the consequence of poor individual choices. Impulsivity (Roberts & Jones, 2001; Davies & Lea, 1995; Norvilitis et al., 2003), over solicitation (Bianco & Bosco, 2002; Kessler, 1998; Souccar; 1998; Hoffman, McKenzie & Paris2008) and optimism about ability to repay debt (Wells, 2007; Drentea, 2008; Norvilitis et al., 2003) are well documented in literature as reasons students incur credit card debt. Such factors suggest that students can make choices to eliminate accumulating credit card debt and simply need to make better choices. This is not entirely true. A study conducted by Lyons (2004) found that students from families with lower incomes and Black and Hispanic college students were more likely to have unmanageable credit 2 card debt loads. Lyons s study confirmed that these students were more vulnerable to debt because in addition to the difficulty of managing their credit card debt they were also having financial difficulties in general because they were from families with lower incomes. The results of Lyons s study indicated that students from poorer families were more likely to hold large credit balances, have little or no financial support from parents, work more than hours per week and more likely to hold other types of debt and receive need-based financial aid. These findings support concerns raised by Zhou and Su (2000) who indicate that students with lower family incomes are likely to have higher student loan amounts and credit card debt than students from families with higher incomes. These studies suggest that college students from poorer families and minority college students are more vulnerable to accumulate debt that they cannot repay, primarily because they do not have other monetary resources available to help meet the expenses of college attendance. Sharply reduced family financial contributions to college expenses, and declines in public financing of higher education have shifted student economic strategies from savings, grants, and part-time employment to reliance on federally subsidized loans and credit cards. For disadvantaged college students credit cards offer a borrowing source to satisfy college expenses from which their advantaged counter parts are insulated. Lower socioeconomic status creates greater vulnerability for credit card debt. Thus, an over reliance on credit cards to make ends meet or survive the economic demands of college could be viewed as hyper consumption and irresponsible credit management instead of a survival tactic to cope with low socioeconomic status. Literature has confirmed that structural inequality has created varying access to resources that create pronounced advantages and disadvantages for individuals in the realms of socioeconomic status, housing and education (Wilson, 2003, 1990; Robert, 1999; 3 Kessler et al., 1999, 2003, MacLeod, 2000; Mills, 2003; Link and Phelan 1995). Structural inequality occurs when organizations, institutions, governments or social networks contain an embedded bias, which provides advantages for some members and marginalizes or produces disadvantages for other members. This can involve unequal access to health care, housing, education and other physical or financial resources or opportunities (Jencks, 2003; Conley, 2003; Wright, 2003). One of the consequences of sustained structural inequality over time are disparities in a society s resources primarily the distribution of wealth. Socioeconomic stratification is the hierarchical arrangement of classes within a given society based upon wealth, power, and prestige (Wright, 2003). One of the central beliefs of socioeconomic stratification results in unequal distribution of desirable resources and rewards in society (Wright, 2008; Broman, 1996; Ren, Amick, & Williams, 1999; Microwsky, & Ross, 1999; William, 1990; Oliver, & Shapiro, 1995). Unequal distribution of rewards and resources limit the capacity of the individual to adequately cope and adapt in an environment. Macro social structures are correlated to individual characteristics and behavior. This perspective predicts that because social structures shape individual values, and behaviors, credit card spending and debt then, could be attributed to conditions of life that derive from an individual s structural position. While individuals can make choices regarding their individual behaviors, those choices are situated within political, economic, historical, cultural, and family, contexts. The idea that everyone has the same opportunities and that individuals can choose their way into a socioeconomic status that confers resources to adequately compete in life is uncritical and simplistic. Today the United States has suffered unprecedented declines in 4 employment. Recession woes complicate post graduation plans for many hopeful graduates, and increases in tuition are becoming extortionate, these societal issues demonstrate that in these financially turbulent times, even those who occupy higher socio economic classes are not completely protected from a compromised economy. Social positioning among the rungs of the lower class today, requires heightened agency and over access to resources to transcend classes and level the playing field. Unfortunately, the United States has been witnessing a steady decline in household incomes since the mid-1990 s, coupled with rising college education costs (Manning, 2002; Baum, & O Malley as cited in Lyons, 2004). Black and Morgan (1999) found that families with a wide range of economic characteristics are borrowing on credit cards to meet household expenses. Simultaneously, credit card spending has increased from $243 billion in 1990 to $891 billion in 2000 (U.S. Bureau of the Census, 1999 as cited in Drentea, 2000). Over the last two decades, households have been financing more of their expenditures using credit (Getter, 2003). Greater household debt use, larger amounts of credit borrowed, and broader distribution of consumer credit have gen
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