The big lie about credit card debt
By Liz Pulliam Weston


Some people lie about their debts, and some people are in denial.

But when a survey says 90% of Americans are either liars or in denial about how much they owe on credit cards, you can bet it's the surveyors who are the delusional ones.

In June, CreditCards.com released a GfK Roper poll that purported to detail Americans' relationships with credit cards. The survey contained plenty of interesting tidbits, but the poll takers went aground when they tried asking how the respondents' credit card debts compared to the national average. Here's a quote from the release:

"By some estimates, the average American household has over $9,300 in credit card debt. Yet, despite Americans' concern about their spending habits, few people are willing to own up to their balances: over 90 percent of survey respondents believe they had the same amount (as) or less debt (than) the average American. This makes a revealing statement about America's complex relationship with credit cards."

Actually, it makes a revealing statement about how pernicious a false statistic can be. Those of you who have read my previous columns about the myth of the average credit card debt can jump ahead. For those who are joining the class late, we'll review:

1. The majority of U.S. households have no credit card debt, according to the Federal Reserve's latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.

2. Of the households that do owe money on credit cards, the median balance was $2,200 -- meaning half owe more, half less.

3. Only 8.3% of households owe $9,000 or more on their cards.

A botched poll question
Those figures are for 2004, the latest year for which numbers are available. The next triennial survey won't be released until 2009. But the numbers don't change that much from survey to survey. The median balance has crept up over the years; in 2001, it was $1,900. But the percentage of those who owe a balance versus those who don't stays pretty much the same, as does the percentage carrying hefty credit card debts.

Yet GfK Roper used the bogus figure in a poll question, saying: "Some statistics say that the average person has $9,300 in credit card debt. Would you say you have more credit card debt than the average person, less credit card debt, or are you just about average?"

So you can see that the respondents' answers weren't delusional or deceptive. They were perfectly understandable because more than 90% of the respondents likely do have less than $9,300 in credit card debt.

Myths and more myths
This isn't the first time pollsters have used a fundamentally incorrect assumption about the prevalence of credit card debt to make U.S. consumers look like lying idiots.

In 2004, the otherwise exemplary Bankrate.com trumpeted a survey that claimed Americans were in "debt denial" because, among other results, nearly nine out of 10 said credit card debt was not a source of friction in their lives.

To quote one of the stories written about that survey: "Most say they are worried about the amount of credit card debt in this country but insist that they, personally, don't have a problem. Which raises the question, are they kidding themselves?"

The logical answer, based on the evidence, is no, but logic seems to fly out the window when plastic is involved.

I should know. I've been pointing out the gap between the myth of credit card debt and the reality for more than five years, dating to when the figure typically used was closer to $8,000.

As far as I can tell, the myth stems from figures published by CardWeb.com, which tracks credit card trends. CardWeb totals up the amounts owed on credit cards at the end of each year, then divides that sum by the number of households it says have at least one credit card to come up with an average-debt-per-household figure.

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The total includes amounts charged on cards by businesses as well as by consumers, and it includes balances that are about to be paid off as well as those that will be carried into the new year.

The distortion is spread
Even if the figures were cleaned up, having an average figure wouldn't be all that helpful because averages are so easily skewed.

The example I usually give to illustrate the fallacy of averages is to imagine that you and 17 of your friends were having dinner with Bill Gates and Warren Buffett. The average net worth of a person at that table would be about $5 billion. The fact that everybody else's personal net worth was a lot less wouldn't affect the average that much because Bill and Warren are so much wealthier than the rest of us.

Similarly, the small percentage of folks with big credit card balances is skewing the average household figure for everybody else.

So why do I care? And why should you?

Well, for one, it's irritating seeing a lie quoted in so many news stories, speeches and blog entries about credit card debt. Our national discussions about consumer indebtedness and bankruptcy are being distorted by the idea that we're waddling around with four- and five-figure credit card debts.

The myth also gives false comfort to folks who think they're "average" for having credit card debt, when they're actually charging down the road to financial ruin. (Those folks are also the ones I'll hear from after this column is published, by the way. Their arguments usually boil down to "I have credit card debt, so the myth must be true.")

But mostly, the myth reflects badly on Americans. Most of us tell the truth, most of us aren't in denial, and most of us aren't nearly as stupid as some pollsters would like to think.