The Cashless Society:

An investigation into the determinants of electronic payment

instrument ownership and usage

Zandran Rodriguez
1205461
ECON 999: Directed Research Project
12/06/14

1.

Introduction
Money has historically taken a physical form that people can hold onto. However, with the rise of

the internet, and advances in the last twenty years in computing technology, this is no longer the case.
The world is becoming a cashless society. In 2011, cash was used in only 27% of American Point of Sale
(POS) purchases and is expected to fall to 23% by 2017 (Robertson & Van Dyke 2012). Already, for many
large household financial inflows and outflows, such as bill payments or paycheques, transactions are
often electronic. For both workers and customers, payments are already arranged in a computer by
direct deposit or withdrawal, with statements available online.
For smaller transactions, such as retail purchases, cash is still king - but for how long? At present,
there are two alternatives to cash that have been widely adopted by the general public: debit cards and
credit cards issued by banks. One must have a bank account to participate in the banks cashless
economy. However, governments are also looking to enter the realm of electronic currency. For
example, in Canada there is a plan by the Royal Canadian Mint, to replace physical bills and coins with an
electronic currency known as the MintChip1. A study of what factors influence adoption and then usage
of the existing electronic instruments would be appropriate. Before governments switch over fully to an
electronic currency system, they must know which demographics to target at the initial rollout.
In this paper, I examine which demographic variables can be used to predict the two stages
(adoption and usage) for selecting an electronic payment instrument specifically debit and credit
cards. Drawing on the theoretical framework presented below, I test whether the so-called affluence
variables, such as income, wealth, homeownership, work status, and education, determine the use of a
card-based payment instrument. The theoretical framework predicts that people in more affluent
conditions are more likely to use a card based payment instrument. It follows that that those who own
card-based instruments are the same kinds of people who will painlessly switch over to an all-electronic
1

The Royal Canadian Mint MintChip website: http://developer.mintchipchallenge.com/

or cashless society. It is my hypothesis that the more affluent are more likely to willingly adopt a
cashless society, while the less affluent are more likely to resist adoption.
Similar studies to mine include Kennickell and Kwast (1997) and Stavins (2001) who look at
ownership, King (2004) who implies usage from ownership, Cohen and Rysman (2012) and Koulayev,
Rysman, Schuh and Stavins (2013) who look at usage and ownership. Compared to previous studies, my
contribution is that I investigate both ownership and usage of the two most prevalent electronic
payment instruments using standard econometric techniques. My findings are consistent with prior
studies. Also, whereas prior studies rely on assumptions, my paper also provides a theoretical
framework, with testable hypothesis to explain ownership and usage.
The paper proceeds as follows: Section 2 provides a review of the relevant literature. Section 3
provides the necessary theoretical framework. Section 4 outlines the econometric models complete
with checks. Section 5 describes the data used in this study. Section 6 provides preliminary results.
Section 7 discusses results. Section 8 concludes.
2.

Literature Review
There are several types of studies that examine the effect demographic variables have on

electronic payment instruments. In contrast to my approach, many of these studies investigate

ownership of a payment instrument and then interpolate these findings on usage patterns because
ownership and usage datasets are separate. One of the very first studies into the relationship between
electronic payment instruments and demographics is Kennickell and Kwast (1997) who use univariate
probit regressions to predict the adoption of various electronic payment instruments. Kennickell and
Kwast use data from the 1995 Survey of Consumer Finances (SCF), a tri-annual survey from the Board of
Governors of the U.S. Federal Reserve System. This survey only states whether the respondent owns or
has used a payment instrument and not the frequency or dollar value of purchases. Kennickell and

Kwast (1997) come to the conclusion that income, financial assets, age and education determine the
adoption of electronic payment instruments.
It is curious to note that Kennickell and Kwast (1997) did not classify credit cards as electronic
payment instruments, but focused instead on smart cards a card with a stored value. Smart cards
were never widely adopted by the public, and credit cards are used extensively in e-commerce. This
omission is likely because the paper was written before the advent of mainstream e-commerce, where
credit cards are very important. My study includes credit card usage (frequency) and ownership as key
dependent variables. The SCF includes information consumers use to make financial decisions, which
Kennickell and Kwast found to be influential on electronic payment instrument adoption. The survey I
use does not have this information.
Stavins (2001) uses the 1998 SCF to examine what leads a person to own (but not use) a particular
type of electronic payment instrument. Stavins uses logit regressions on the adoption of electronic
payment instruments (including debit and credit cards) against demographic variables. Stavins finds a
positive link between affluence variables such as income, wealth, education and employment status and
electronic payment instrument adoption (ownership), which is consistent with the theory. In contrast,
increases in age and family size reduce the likelihood of using electronic payment instruments.
Unfortunately, Stavins associates ownership with usage, and strong conclusions cannot be drawn simply
from finding a probability of ownership.
Many of the demographic variables included in my analysis are based on this paper. I also use
similar baseline ownership models, using probit rather than logit; but I use bivariate probit to examine
the interaction between ownership of credit and debit cards. People may own a card and keep it in
their drawer, never using it. I am able to identify usage patterns, matching ownership with usage.
A subsequent study, King (2004), also drawing on the 1995 SCF, investigates the link between
money demand and credit card ownership to imply usage. King asks whether there is a negative

relationship between checking account balances and credit card ownership and if this relationship is due
to borrowing or convenience usage. Credit card ownership can be a substitute for regular cash money
through either borrowing or its convenience usage with some of the convenience being extra rewards
lowering the cost of ownership. The dependent variables are checking account, savings account and
money market fund account (MMA) balances. Because these three are the most liquid accounts, they
provide a good proxy for the unobservable household demand for cash holdings. King finds a negative
relationship between credit card ownership and checking account balances, but a positive and
significant relationship between savings account balances and credit card ownership. This relationship
implies that there is a convenience usage effect as people move their money out of checking accounts
and into savings accounts while they enjoy a small float. The literature describes float as daily interest
accumulation in a consumers savings account, while deferring credit card payments to a later date.
While King (2004) uses an indirect method to identify convenience usage of card, my dataset
handles this question as a pecuniary2 variable the convenience of usage. Also, instead of looking at
transactions demand for through a proxy variable, my sample has the number of transactions at the POS
as a count variable directly. Like King, I employ the Heckman correction procedure when examining
transactions demand, modeling selection of card ownership to investigate the determinants of card
usage.
Until recently, usage patterns of payment instruments have been hard to find. If the data does
have ownership and usage, it is from a proprietary data set that is not tailored for studies of payment
instruments. One of the first studies to examine payment instrument usage, Cohen and Rysman (2012),
looks at consumer transactions directly. The authors look at both the dollar value and number of times
a payment instrument (cash, check or card) is used. They do this by piggybacking on a food study that
uses data from the A.C. Neilsens Home-Scan Database spanning 2006 to 2008, containing grocery

Pecuniary meaning related to the cost of ownership.

purchasing habits. Using panel estimation techniques, they look at payment choice (cash, cheque or
electronic card), as a function of purchase size, and a battery of standard household demographics. The
authors find that affluent consumers are more likely to use cards, increasing the evidence of this
hypothesis since this investigation is on a different data set.
Because the data collected from this study was intended for analysis of grocery item purchases,
the survey lumps credit and debit into one card payment method. This survey was limited to grocery
items, while the survey I am using includes all retail POS payments. One disadvantage of my survey,
however, is that it only looks at the number of transactions, while the A.C. Neilsen survey includes dollar
amounts as well. Additionally, Cohen and Rysman were able to investigate usage patterns across the
time dimension, by looking at the demographics of people who switched their primary payment
instrument, as well as the persistence of the staying with the switched instrument. The survey data I am
using does not allow this analysis yet.
Finally, Koulayev, Rysman, Schuh and Stavins (2013) build a structural model for usage using the
Survey of Consumer Payment Choice (SCPC) by the Federal Reserve Bank of Boston (the Boston Fed).
This paper alerted me to the existence of the SCPC, but a structural model is beyond the scope of this
paper.
3.

Theoretical Framework
There are two theories that explain how consumers choose a payment instrument, a behavioral

theory and a cost minimizing (pecuniary) theory. Thaler and Shefrin (1981) proposed a behavioral
theory of self-control, according to which consumers try to maximize utility based on self-imposed rule
of thumb restrictions. The salient restriction (which affects purchases of all consumer goods except
houses and automobiles) is the ban on borrowing, or a debt-ethic. Debt-ethic would prevent a
consumer from using or even owning a credit card. Thaler and Shefrin note that debt-ethic is learned by
conforming to role models such as parents who share demographic distinctions such as social class,

education and age. This behavioral theory is an extension of the Permanent Income Hypothesis (PIH)
according to which households smooth their consumption over their lifetime by borrowing from the
future. Thaler (1985) observes that some families have a tendency to go deep into debt by allowing
themselves to borrow to smooth consumption, so a debt-ethic is needed to prevent excesses in
spending. When combining PIH with debt-ethic, age might be a way to identify a debt-ethic, as the
young are more impatient and less likely to have developed the discipline of self-control.
Gross and Souleles (2002) theorize that liquidity constraints (a low level of wealth and income)
keep consumers from smoothing their consumption, which could be the source of the debt-ethic.
People with higher income or wealth, who are not liquidity constrained, are better able to smooth their
consumption by using credit cards. Mantel (2000) makes a few additions by noting that wealth and
income (liquidity) limit not only the payment instrument choice, but what is available for the consumer
to use. Income is a better measure of liquidity than wealth because wealth can be tied up in assets like
houses or retirement plans. Stability of the income and wealth (employment status, education) are also
critical in the framework. In addition to debt-ethic, a low-income consumer with an unstable income
might choose to not even use debit cards to restrict their spending in the event that their account is
overdrawn, and they are unable to cover the loss.
Providing a link between debt-ethic and measurable variables, Fusaro (2008) developed a theory
that debit cards are used to restrain overspending, postulating that those who are liquid (high wealth
and income) do not need a spending restraint. Cash can also be used to restrain spending even further
than debit cards can, due to how much can be carried on a person. However, Fusaro investigates the
possibility that a consumer is a rational decision maker and is restraining payment choices based on the
cost of the transaction (pecuniary), instead of some arbitrary behavioral rule.
In contrast to the studies thus far, Zinman (2009) proposes a rational agent model where
consumers minimize costs when choosing a payment instrument at the POS. This is primarily a theory of

usage instead of ownership. A consumer first choses whether to use cash or a card (debit or credit)
based on acceptance, portability, time costs and security. Then the consumer choses to use a debit or
credit card based on marginal costs. The marginal costs of owning a debit card include forgone credit
card float (and rewards) compared to the marginal costs of a credit card which only has interest rate
caharges and the occasional annual fee. Other debit card costs include overdraft limit fees (which incur
negative effects on a consumers credit score), transactions fees at the POS, and a lack of fraud
protection associated with credit cards.
Therefore, a more affluent consumer that does not maintain a revolving credit card balance (a
person who does not pay their last credit card statement in full) can benefit from owning a credit card
over a debit card or cash.
In summary, the behavioral and rational theories predict that as consumers affluence increases
they will move from cash, to debit and then to credit as a primary payment instrument. In order to
identify if the consumer is a rational cost minimizing agent, I include pecuniary dummy variables in my
regression analysis. The two theories need not be mutually exclusive. Perhaps there are wealthy
consumers who wish to minimize cost, or poor consumers who have no self-control. Table I in Appendix
III summarizes the expected effect the explanatory variables will have based on theory.
4.1 Econometric model for ownership
I begin my investigation by running a bivariate probit regression system to discover the likelihood
of owning a debit or credit card3. A person who carries more than one type of payment instrument in
their wallet is more likely to use either of them, and is therefore a perfect candidate for a cashless
society. The probability that a consumer will own an electronic payment instrument is assumed to be:
Pr(Debit = 1 | Z) = (Z1)
Pr(Credit = 1 | Z) = (Z2)

(1)
(2)

The results of the univariate probits are consistent with theory, but are left out to meet the 30 page requirement.

where
Debit and Credit denote ownership of the respective payment instrument
denotes the cumulative distribution function of a standard normal distribution
Z denotes a vector of selection variables including an intercept4
j denotes the coefficient on Z, for j = 1, 2
For probit regressions to work, assume there is a latent random variable influencing the decision on the
ith person owning the payment instrument represented by the auxiliary equations (1a) and (2a):
Debiti* = Z1i 1 + ui ,

(1a)

Crediti* = Z2i 2 + vi ,

(2a)

where
ui and vi are random errors ~ N(0,1), and may be correlated
Debit = 1 if Debiti* > 0, 0 else
Credit = 1 if Crediti* > 0, 0 else
I keep the Z variables the same for both individual probits, so that I can run them as a bivariate system
representing electronic card usage. Although there is a third type of electronic card in my sample, a
prepaid stored value card, less than 1% of all transactions are on this type of card while credit and debit
cards are the type currently seen in regular retail transactions. Therefore, this combination is a good
proxy for whatever kind of cashless system the governments around the world will later adopt for
personal transactions. For the bivariate system, the marginal effects (the effect of one variable holding
all other variables constant) of the continuous variables are computed as

[ , ]
,

Where Zk

is one of the continuous independent variables evaluated at the mean where i and j are either 0 or 1.
The marginal effects of the dummy variables are computed as E[Debit = i Credit = j, D = 1] - E[Debit = i
Credit = j, D = 0], where D is a dummy variable and i and j are either 0 or 1.
4

The contents of Z, excluding the intercept are listed in Appendix II.

If the two random error terms ui and vi are correlated, it is best to run the model as a system of
these two equations together. If the sign of the error correlation coefficient is negative, then the cards
are substitutes which is consistent with the theory.
4.2 Econometric model for usage
I focus my investigation on people who have the payment instrument, and have the choice to use
it. Therefore, I drop observations for people who do not own the instrument. According to Table 3,
there are 1555 debit card adopters, and 1597 credit card adopters respectively. As a default payment
instrument, the full sample has access to cash which will be compared against card based instruments.
The baseline OLS specification for use of an electronic payment instrument is as follows:
Debitusei = X1i1 + i ,

(3)

Creditusei = X2i2 + i ,

(4)

where
Debituse and Credituse denote the number of card transactions at the POS in a typical month,
averaged from weekly data
X denotes a vector of regression variables including an intercept5
j denotes the coefficient on X, for j = 1, 2
i and i are random errors ~ N(0,2), and may be correlated
The problem with the above model for usage is that when we only include people who own a card
instrument in our regression, we introduce selection bias because our sample is no longer random.
When running OLS regressions, we assume that the expected value of the errors for our whole sample is
zero and normally distributed. If we do not include the entire sample in our regression the expected
value of the errors is no longer zero and we lose part of the normal distribution, so its probability does
not add up to one. Using the two step technique on the whole sample, I estimate the probability
5

The contents of X, excluding the intercept are listed in Appendix II.

10

(probit) of having owning a card instrument using models (1a) and (2b), and save the inverse Mills ratio,
also called Heckmans lambda. Adding Heckmans lambda to the baseline models (3) and (4) corrects for
selection bias in the errors. In order for the Heckman selection procedure to properly function, it is
necessary that the selection vector (Z) and regression vector (X) differ in some way. By construction, the
pecuniary variables included in Z that require ownership of the payment instrument are not included in
X. Latent variables must differ in the selection equation to capture differences, so the demographic
controls of married and males are used in the selection equations but not the regression equations.
Home ownership is a financial stability indicator used in calculating credit worthiness for obtaining a
credit card, and as such is more useful as a selection variable than a usage variable. If the error terms
from the selection equation and regression equation are correlated then there is a selection bias and
the OLS can be improved by correcting for it.
Because both the Heckman selection and OLS models look at the effects on an average user,
additional information can be obtained with a quantile regression. Breaking up the sample into light,
medium, heavy and super-heavy users can draw deeper insights into usage patterns. For example, given
ownership of a card, what determines the intensity that it will be used? A model that can perform this
task is as follows:
Debitusei = X1i1(p) + i(p),

(3a)

Creditusei = X2i2(p) + i(p) ,

(4b)

where
p denotes the 25th 50th 75th and 90th percentile of the number of POS transactions.
Finally, equations (3) and (4) are run as a system of Seemingly Unrelated Regressions (SUR). Given
the ownership of both a credit and debit card, what encourages a consumer to choose one over the
other? As with the bivariate probit, a negative correlation of the errors indicates substitutes, which is
consistent with theory.

11

4.3 Robustness checks and significance tests

I performed a few checks on model specification before settling on a final model. The usage
relationships were robust to redefining usage in logarithms (percentages) to make a log-level form. The
main relationships under investigation held; however, I am choosing to use level-level form. Security
concerns for debit and credit cards (defined in the same manner as costs and convenience) were
candidate controls for the model. When controlling for security, the magnitude of the estimated
coefficients changed while not being significant, and Heckmans lambda became more insignificant
indicating the presence of multicollinearity. Because of the low significance of net worth in my final
equations, I also tested a quadratic wealth term, but this was also insignificant. My test of the predictive
power of the bivariate probit, seen in Table 9, compares the number of correct predictions against a
nave model that predicts the most frequent outcome6. Since the bivariate probit can out-predict a
nave model, the model is valid. I run overall significance tests on all models in this study and find them
significant beyond 1%. On the correlation between the errors for the bivariate probit and SUR
regressions, I perform a likelihood ratio test and a Breusch-Pagan test of independence respectively, and
find them significant beyond 1% - indicating both systems are valid. I found heterskedasticity in in the
usage equations, so I use robust standard errors on all usage equations7. Finally, when formulating my
final regression equations, I was unable to find significance in the control variables for male and married
individuals, but included them since prior studies use them as controls.
5.

Data description
The SCPC is an annual survey of American consumers that began in 2008. I will be using the 2010

version which is the most recent version available. The survey was conducted by the RAND Corporation
on behalf of the Boston Fed to address questions related to consumer payment choices specifically
adoption of electronic payment instruments. Currently the survey lacks a time dimension where
6
7

The univariate probits are also able to out predict a nave model.
There is no option in Stata to use robust standard errors with the two step Heckman correction model.

12

changes in behavior can be observed. However, in the future, the yearly observations will be stitched
together to form a longitudinal panel (Schuh 2010). There are 2102 raw observations, each representing
a consumer/household. I dropped 67 (3% of all observations) observations where the respondent did
not have a checking account, as my paper is investigating consumer choice and debit and credit cards
require a bank account to make that choice. I also dropped observations where the respondent did not
answer the question to have a uniform sample size across all regressions to reach a final sample of 1,892
observations. The data is publically available as a Stata dataset, so little data manipulation is required.
For the most part, I use the same variables directly from the SCPC. Although internet transactions have
accelerated the process of the cashless society, I focus on POS payments where cash can change hands
(retail and services payments made in person). Binary dummy variables are coded to a 1 or a 0, to
indicate a yes or no. Appendix II provides definitions and brief descriptions of the dependent and
explanatory variables.
Measures of adoption and usage: My key dependent variables are indicator variables for
ownership of electronic payment instruments (credit card and debit cards). The sample asks how many
cards the respondent owns, so my ownership variable is simply asking if the respondent has at least one
card. In addition, I use data on usage patterns (count of monthly transactions) of those instruments
including cash at the POS for both retail goods and service payments. Though monthly transactions are
a count variable, they are presented as an average of weekly transactions containing decimals.
Measures of liquidity : To measure the effect of liquidity on my dependent variables, I include
income and household net worth. Income is not a continuous variable in this sample, as only ranges or
income brackets are available compared to the SCF which measures the actual household income. The
baseline level is a household income of less than $25,000. Net worth is the household assets minus
liabilities, including mortgages and car loans. Some people in the sample have a negative net worth, so I

13

include a dummy variable to capture the behavioral effects of being in hock such consumers comprise
almost 16% of the sample.
Pecuniary and preference measures: I include variables that capture the preferences of a cost
minimizing consumer. Inconvenience, which measures time opportunity costs, are consumer beliefs
that the instrument is inconvenient to use. An overdrawn checking account is both a liquidity constraint
and a cost of using a debit card. Marginal benefits of owning a credit card are measured by whether the
card has a rewards program, offsetting some of the costs of ownership, which are conditional on owning
the card. Finally, whether the consumer used cash in order to receive a discount is also a measure of
cost minimization on the part of the consumer, which is also conditional on owning a card.
Demographics and control variables: Stability of income can be as important as liquidity
according to the theory, so I include employment and home ownership dummy variables. As there is a
sizable percentage of the sample that is not working, but not seeking work (retired, home maker etc.), I
choose a dummy variable identifying if they are working. Home ownership also implies a stable income,
as do higher levels of education. Education is broken into four dummy categories, with the omitted
category respondent having only some college. In my formulation of a final regression, I controlled for
demographic effects outside of the theory including if the respondent is a male, white or married, which
are traditional controls for ownership in prior research.
Caveats and omitted variables: There are a few limitations of the SCPC worth mentioning.
Firstly, the usage variable does not include the amount spent, which is an alternative way of measuring
the relevance of cash and cards. Cohen and Rysman (2012) found that transaction size is the key
determinant of cash usage. Secondly, income and wealth affect the eligibility for credit cards as one has
to meet minimum criteria, so observed outcomes might not entirely reflect the choices consumers
make. Also, my sample was unable to capture religious affiliation, as some religions forbid owning or
using credit instruments for usury reasons.

14

6. Descriptive statistics
Looking at Figure 1, we can see that more than half of all POS payments in this sample are made
by card, highlighting the significance of this study. Table 2 outlines the summary statistics, while Table 3
outlines the sample composition. Over 80% of the sample owns either a debit or credit card, while 67%
own both and 75% of the people who own a credit (or debit) card use the card. Half of the sample that
owns both uses both. The average consumer makes fewer than 17 transactions while there are heavy
users who make more than 100. Cash is still relevant, since cash average usage is the highest of the
three payment types. About 39% of the sample has a household income below $50,000 so I classify
these as the lower income, 40% earn between $50,000 and $99,999 (middle income) and the rest I
classify as higher income with 4% earning above $200,000. From Figure 2, we can see that there is an
increasing trend between income and credit card ownership, but none with debit card ownership. From
Figure 3, we can see that this trend continues into usage, but with lower income households using debit
cards more frequently than credit cards.
Other variables of interest include cost beliefs, age, education, and frugality indicators. Under 6%
the sample considers a card to be inconvenient, while fewer than 8% notice the costs of owning a debit
card even though 19% of the sample has paid overdraft fees. However, 48% sample does notice the
costs of owning a credit card. The average age of the respondent is 52, while there are people as old as
109. The effects of age on ownership of cards can be seen in Figure 4. Debit card ownership decreases
with age while credit card ownership increases with age. The sample is also highly educated with more
than 46% possessing at least a college degree. Finally there is evidence that these consumers minimize
costs, since over 40% have used cash to receive a discount. However, the cost minimizing effect of
credit card rewards may be overstated, because 69% of the sample has a credit card that offers rewards.

15

7.1 Results and Discussion Ownership

The theory predicts that debit cards and credit cards are substitutes. Debit is an inferior
substitute for credit for those without liquidity constraints (the affluent), so we should see the opposite
sign on the coefficients related to liquidity; but we do not. Most of the variables under consideration
are significant at the 1% level unless otherwise noted. Table 4 contains bivariate results for all for
outcomes of ownership owning both, one or neither of the cards. The most important indicator of the
theory, the correlation between the two systems, is negative and significant indicating, that the cards
are substitutes. The probability of owning both increases with income, but decreases significantly in
response to debit card costs and inconvenience. Income also has a negative and increasing effect on
owning only a credit or debit card, suggesting that more affluent people carry both cards. Costs and
inconvenience of the two cards have opposite signs when looking the probability of only owning one
instrument, indicating substitution where consumers seek the lower cost instrument. Home ownership
has negative impact on the probability of only having a debit card but a positive impact on the
probability of owning only a credit card. Employment, also representing income stability, has a positive
impact on credit card ownership, but only at the 5% level. As indicators of income stability, the impact
from employment and home ownership could provide evidence of a liquidity-based debt-ethic, albeit
indirectly. Age mirrors the results in Figure 4, but the magnitude is very small. Net worth and negative
net worth are not significant in any ownership outcome. Higher levels of education decrease the
probability of owning a debit card, while those with only high school have a reduced probability of
owning both.
There are 16 people in the sample who have neither debit nor credit cards, and are presumably
using cash for their POS payments. It is likely that this outlier group is too small to have any meaningful
impact on the overall sample. I capture these people with the bivariate probit outcome P[Debit = 0 ,
Credit = 0]. The magnitudes of all significant variables drop one or two decimal places compared to the

16

other three outcomes indicating that the selection variables are not as important in determining the
cash only consumer.
7.2 Results and Discussion Usage
The standard OLS results along with quantile regressions are found in tables 5, 6 and 7 for debit,
credit and cash usage respectively. A test of the significance of Heckmans lambda reveals that there is
no selection bias in either usage equation, so these estimations are omitted but available upon request.
It could be the case that the variables I used for selection were insufficient for discovering a selection
bias, however the selection models pass significance tests and are able to out predict a nave model.
It is interesting to discover that net worth only matters for usage rather than ownership. Net
worth discourages cash and debit card usage directly and credit card usage indirectly through the
negative net worth dummy. As usage increases, net worth has a stronger negative effect on using a
debit card, albeit still small. A negative net worth primarily dissuades credit card usage of more
frequent users by almost 8 purchases, compared to only one purchase with infrequent users. It could be
the case that consumers feel liquidity constraints at the checkout that they would not notice when
obtaining a card. Under cash, lower income has a negative and increasing effect on the 75th and 90th
percentile frequent users which is counter to the theory. Income is significant but positive whether
under credit or debit card usage. For debit cards, income is significant for infrequent users, while the
significance of income dissipates with higher levels of usage. Under credit cards, income has a higher
impact as usage increases, but mostly for higher income consumers.
Like with the selection equations, the pecuniary variables including credit card rewards respond in
opposite directions, indicating debit and credit cards are substitutes. Debit card costs only matter up to
the median user, while debit card inconvenience has an increasing negative effect as debit card usage
increases. Credit card costs have increasing opposite effects on debit and credit card usage. The
negative effect of credit card inconvenience, only noticed by credit card users, increases as credit card

17

usage increases. The positive impact of credit card rewards increase as credit card usage increases, but
its negative impact on debit card usage remains stable across the usage groups. Finally education at the
post graduate level (representing stable income) also indicates substitution, showing an increasing
preference for credit over debit as usage increases.
The only consistently significant variables across all intensities of cash usage are age and cash
discount, both of which increase in magnitude as usage increases. As the old are supplanted by the
young, and fewer businesses offer cash discounts, the use of cash should continue to decline.
The combined usage SUR results for consumers who have the choice between using debit and
credit cards are in Table 8. Like the bivariate probit regressions, the correlation between using either
card is negative and significant indicating that they are substitutes. Looking at liquidity, middle income
is significant for using debit cards, while higher income is significant and increasing in magnitude for use
of credit cards. Net worth and negative net worth move in the correct directions, though the
magnitude is small and the significance is weak. People who have had overdrawn accounts are more
likely to use a debit card another possible indication of debt-ethic. Like the OLS and quantile
regressions, the pecuniary variables change sign in the correct direction indicating consumers substitute
the payment instrument to one with a lower cost given one has the choice to use either. Credit card
rewards are again an incentive in choosing credit over debit having a positive impact on credit card
usage and a negative effect on debit card usage. Finally, post-graduate studies show a substitution
preference for credit cards over debit cards based on signs. Under all the regressions performed in this
study, the effects of cost minimization are stronger than the effects of any type of debt-ethic, a finding
that is consistent with Zinman (2009).

18

Conclusion
Across a wide variety of models and tests, it does appear that affluence has an effect on the

adoption and usage of electronic payment instruments. Credit cards and debit cards are substitutes for
making POS payments. Overall it would appear that consumers behave like cost-minimizing rational
agents when selecting a payment instrument. The pecuniary variables have a more consistent impact
(as predicted by theory) than do liquidity (debt-ethic) variables however, income always is a factor in
selecting or using a payment instrument. Credit card rewards programs offer a tangible incentive for
substituting debit cards at the POS among most frequencies of users. Further study into these findings,
such as the response to the type of rewards offered, could be helpful to banks and other credit card
issuers when offering cards to the public.
There are also some limitations that could be addressed with future research. There can be
improvements for modeling the relationships presented in this study. Since I dropped households
without a bank account from my sample, a future investigation could take these people into account
using a hurdle model with the first hurdle owning a bank account, and the second owning the
instrument. Furthermore, just because I was unable to find selection bias does not mean that it does
not exist. There might be better selection variables for explaining card ownership. When looking at the
survey itself, the SCPC was conceived as a longitudinal study over many of the same respondents. So
far, three years of data are available for public use. In the future, the Boston Fed will combine these
surveys into one panel so that the time dimension can be analyzed. Monitoring temporal changes in the
adoption of the cashless society as time progresses could help governments in two additional ways. It
can help them improve their measures of money aggregates used to measure the money supply as
cashlessness grows, and assess the cost savings from printing fewer bills and minting fewer coins as
cash use shrinks. Further research into this area would do well to incorporate these changes to the
study as they are made available.

19

Works Cited
Cohen, M. Kugler, & Rysman, M. (2012). Payment choice with Consumer Panel Data. Working Paper.
Fusaro, M. (2008). Debit vs credit: A model of self-control with evidence from checking accounts.
Working Paper, East Carolina University.
Gerdes, G. R. (2008, October). Recent Payment Trends in the United States. Retrieved from Federal
Reserve Bulletin Volume 94: http://www.federalreserve.gov/pubs/bulletin/2008/
Goss, D.B., & N.S. Souleles. (2002). Do Liquidity Constraints and Interest Rates Matter for Consumer
Behavior? Evidence from Credit Card Data. Quarterly Journal of Economics 117 (1), 149-185.
Kennickell, A. & Kwast, M. (1997). Who Uses Electronic Banking? Results from the 1995 Survey of
Consumer Finances. Proceedings from the Federal Reserve Bank of Chicago's Annual Conference
on Bank Structure and Competition, Chicago: Federal Reserve Bank of Chicago, 56-75.
King, A. S. (2004). Untangling the Effects of Credit Cards on Money Demand: Usage vs. Borrowing.
Quarterly Journal of Business and Economics, Vol. 43, No. 1/2 (Winter - Spring), 57-80.
Koulayev, S., M. Rysman, S. Schuh, & J. Stavins. (2013). Explaining adoption and use of payment
instruments by U.S. consumers. Working Paper.
Mantel, B. (2000). Why do consumers pay bills electronically? An empirical analysis. Economic
Perspectives - Federal Reserve Bank of Chicago Vol. 24, No. 4, 32-47.
Robertson B. & Van Dyke A. (2012). 2012-2017: Retail Point of Sale Forecast. Javelin Strategy &
Research.
Schuh, S. (2010). Overview of the Survey of Consumer Payment Choice (SCPC) Program. Buenos Aires:
IACA Central Bank Forum on Payment Surveys.
Stavins, J. (2001). Effect of Consumer Characteristics on the Use of Payment Instruments. New England
Economic Review, Issue Number 3, 19-31.
Thaler, Richard H. (1985). Mental Accounting and Consumer Choice. Marketing Science, Vol 4, No 3, 199214.
Thaler, Richard H. & Hersh. M. Shefrin. (April 1981). An Economic Theory of Self Control. Journal of
Political Economy, Vol 89, No 2, 392-406.
The Federal Reserve Bank of Boston. (2013, November). 2010 Survey of Consumer Payment Choice.
Retrieved May 11, 2014, from http://www.bostonfed.org/economic/cprc/SCPC/.
The Royal Canadian Mint. (2012, April 4). Retrieved May 11, 2014, from MintChip: The evolution of
currency: http://developer.mintchipchallenge.com/
Zinman, J. (2009). Debit or credit? Journal of Banking & Finance 33, 358366.
20

Appendix I: Figures
Figure 1: Proportion of retail payments by payment instrument
0.14%

8.85%

Debit Card

31.73%

Credit Card
Stored Value
Cash

34.06%

Cheque
Money Order

24.58%

0.64%

Figure 2: Proportion of card holders by household income

Credit Card
Proportion

Proportion

Debit Card
1
0.8
0.6
0.4
0.2
0

1
0.8
0.6
0.4
0.2
0

Household Income
Household Income

Figure 3: Frequency of card usage by household income

Credit Card

Debit Card

18

18

14
Household Income

16

14
Household Income

16

12

12

10

10

8
6
4

8
6
4

0
0

50

100

150

Frequency

50
100
Frequency

Household income bins range between less than $5,000 to $200,000 or more
21

150

Figure 4: Proportion of card holders by age

1

0.8

Proportion

Proportion

Credit Card

Debit Card

0.6
0.4

0.8
0.6
0.4
0.2

0.2
0
0

0
0

50 Age

100

50

100

Age

150

22

150

Appendix II: Data

Independent Variable

Z X

Description

Liquidity
Net Worth
Z X Family Net worth in $1,000s
Negative net worth
Z X (Y/N)
$25,000-49,999
Z X Annual Household income (Y/N) Low Income
$50,000-74,999
Z X Annual Household income (Y/N) Middle Income
$75,000-99,999
Z X Annual Household income (Y/N) Middle Income
$100,000-124,999
Z X Annual Household income (Y/N) High Income
$125,000-199,999
Z X Annual Household income (Y/N) High Income
Greater than $200,000
Z X Annual Household income (Y/N) High Income
Pecuniary Variables
Cash Discount
X During past 12 months: respondent paid in cash to receive a discount (Y/N)
Debit card cost*
Z X Belief that costs of payment instrument is high or very high (Y/N)
Debit inconvenience*
Z X Belief that inconvenience of payment instrument is high or very high (Y/N)
Credit card cost*
Z X Belief that costs of payment instrument is high or very high (Y/N)
Credit inconvenience*
Z X Belief that inconvenience of payment instrument is high or very high (Y/N)
Overdraft
Z X Account overdrawn in the last 12 months and paid a fee (Y/N)
Credit card rewards
X Credit card offers rewards (Y/N)
Demograhics
Age
Z X Survey starts at 18 years of age
Home ownership
Z
(Y/N)
Married
Z
(Y/N)
Male
Z
(Y/N)
Currently working
Z X (Y/N)
White
Z X Race: white (Y/N)
Education
Less than high school
Z X (Y/N)
High school
Z X (Y/N)
College
Z X (Y/N)
Post-graduate studies
Z X (Y/N)
* Belief ranges between 5 (very low) to 1 (very high), for example a 5 would indicate high cost or high
convenience
Measures cost in terms of money
Measures cost in terms of time
Dependent Variables: Ownership selection equations (Z), Usage regression equations (X)

23

Appendix III: Tables

Table 1: Summary of Theoretical Predictions
Expected Sign
Variable
Debit Credit
Liquidity
Net worth
Negative net worth
Low income

+
+

+
-

Middle income

Higher income

Explanation
A debt-ethic is formed from liquidity constraints.

Pecuniary Variables
Cash discount
Debit card cost
Debit inconvenience
Credit card cost
Credit inconvenience
Overdraft
Credit card rewards
Demographics

+
+
+
+

Age

Increased liquidity causes a substitution from debit to credit cards. Theory predicts net worth will
not be as significant as income.
Higher Income leads to a higher immediate source of funds (liquidity). The theory predicts that
income should be more significant and have a larger impact than wealth. It is unknown where the
cut-off for the substitution from debit cards to credit cards lies, but high income consumers should
prefer credit cards to debit cards.
Consumers seek to minimize costs.
Cash is a substitute for both cards.
A cost minimizing consumer will substitute between the payment instrument that costs the least in
terms of money and time.
A cost minimizing consumer would avoid the fees associated with being overdrawn.
Rewards lower the marginal cost of owning a credit card.
Debt-ethic theory predicts a higher use of debit as consumer ages and becomes more responsible,
but income often increases with age which increases liquidity.

Home ownership
+
Owning a home is a sign of a more stable income stream (liquidity constraint effects).
Currently working
+
Employment is a sign of a more stable income stream (liquidity constraint effects).
Post-secondary education
+
Higher education is associated with a more stable income (liquidity constraint effects).
Debit = Debit card usage and ownership. Credit = Credit card usage and ownership.

24

Table 2: Summary Statistics

Variable
Debit Card Usage
Credit Card Usage
Cash Usage
Net Worth
Negative Net Worth
$Less than $25,000*
$25,000-49,999
$50,000-74,999
$75,000-99,999
$100,000-124,999
$125,000-199,999
Greater than $200,000
Cash discount
Debit card cost
Debit inconvenience
Credit card cost
Credit inconvenience
Overdraft
Credit rewards
Age
Home ownership
Married
Male
Currently working
White
Less than high school
High school
College
Post-graduate Studies

Observations Mean
Std. Dev.
Min
1892
15.96241 23.26301
0
1892
12.52749 20.36118
0
1892
16.76198 19.44685
0
1892
10644.1
63603.68 -173964
1892
0.156448 0.363376
0
1892
0.1353066 0.3421411
0
1892
0.258985 0.438193
0
1892
0.254228 0.435542
0
1892
0.153277
0.36035
0
1892
0.086681 0.281441
0
1892
0.07611
0.265244
0
1892
0.035412 0.184868
0
1892
0.40592
0.491199
0
1892
0.073467 0.260971
0
1892
0.055497 0.229008
0
1892
0.477273 0.499615
0
1892
0.04334
0.203676
0
1892
0.190275 0.392622
0
1892
0.6881607 0.4633671
0
1892
52.22833 14.08791
18
1892
0.792812 0.405399
0
1892
0.672833 0.469303
0
1892
0.42389
0.494304
0
1892
0.633721 0.481914
0
1892
0.891649 0.310905
0
1892
0.014271 0.118636
0
1892
0.14852
0.355709
0
1892
0.261628 0.439637
0
1892
0.207188 0.405399
0

Max
139.1429
117.4018
108.7054
1020000
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
109
1
1
1
1
1
1
1
1
1

indicates annual household income. *not included in regressions due to multicolinarity.

The mean of the dummy variables (outcome of 1 or 0) is the proportion of the sample.

Table 3: Sample Composition

Total
Debit card holders
Debit card users
Credit card holders
Credit card users
Holders of both instruments
Users of both instruments

Number
1892
1555
1188
1597
1212
1276
635

Percent of Sample
100.00%
82.19%
62.79%
84.41%
64.06%
67.44%
33.56%

25

Percent of Subsample

76.40%
75.89%
49.76%

Table 4: Ownership bivariate probit ownership regression results (1892 observations)

P[Debit = 1 , Credit = 1 ]

P[Debit = 1 , Credit = 0 ]

P[Debit = 0 , Credit = 1 ]

P[Debit = 0 , Credit = 0 ]

Variable

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

Net Worth
Negative Net Worth
$25,000-49,999
$50,000-74,999
$75,000-99,999
$100,000-124,999
$125,000-199,999
Greater than $200,000
Debit card cost
Debit card inconvenience
Credit card cost
Credit card inconvenience
Overdraft
Age
Home ownership
Married
Male
Currently working
White
Less than high school
High school
College
Post-graduate studies

2.45E-07

0.000

-2.61E-07

0.000

3.46E-08

0.000

-1.90E-08

0.000

0.005

0.030

0.021

0.019

-0.027

0.025

-3.28E-06

0.002

0.106***

0.027

-0.047***

0.015

-0.053**

0.024

-0.006***

0.002

0.115***

0.030

-0.087***

0.014

-0.021

0.027

-0.007***

0.002

0.145***

0.030

-0.092***

0.013

-0.045

0.028

-0.007***

0.002

0.177***

0.026

-0.088***

0.011

-0.083***

0.024

-0.007***

0.002

0.167***

0.028

-0.087***

0.012

-0.073***

0.026

-0.006***

0.002

0.155***

0.034

-0.083***

0.013

-0.065*

0.032

-0.006***

0.002

-0.215***

0.047

-0.006

0.023

0.206***

0.044

0.015**

0.008

-0.319***

0.056

-0.070***

0.014

0.384***

0.056

0.005

0.006

0.045**

0.020

0.031**

0.013

-0.074***

0.017

-0.002

0.001

-0.138**

0.058

0.224***

0.056

-0.089***

0.023

0.004

0.005

-0.055**

0.028

0.121***

0.022

-0.069***

0.019

0.003

0.002

-0.002***

0.001

-0.002***

0.001

0.004***

0.001

-7.32E-05

0.000

-0.005

0.028

-0.078***

0.022

0.082***

0.019

-3.62E-04

0.002

-0.033

0.023

0.025*

0.014

0.006

0.019

0.002

0.001

-0.028

0.020

0.009

0.013

0.017

0.016

0.002

0.001

-0.049**

0.022

0.003

0.015

0.044**

0.018

0.003*

0.001

0.006

0.033

-0.075***

0.026

0.069***

0.022

-4.38-05

0.002

-0.154

0.095

0.045

0.057

0.094

0.086

0.015

0.014

-0.087***

0.032

0.040*

0.020

0.040

0.027

0.007**

0.003

0.019

0.025

-0.043***

0.014

0.026

0.022

-0.002

0.001

0.049*
0.028
-0.079***
0.014
0.034
0.025
-0.005***
***, ** and * indicate significance at the 1%, 5% and 10% levels respectively. M.E. = Marginal Effect, S.E. = Standard Error.
indicates annual household income.

26

0.002

Table 5: Debit card usage OLS and Quantile regression results (1555 observations)
th

OLS
Variable

th

25 Percentile

50 Percentile

th

75 Percentile

th

90 Percentile

M.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

-2.06E-05***

Net Worth

S.E.
4.57E-06

-1.47E-06

1.4E-06

-5.89E-06

4.33E-06

-2.48E-05***

8.70E-06

-5.22E-05***

1.35E-05

1.717

1.914

0.931

0.766

-1.275

1.176

2.069

3.822

7.422

6.068

2.863

1.843

1.042

0.721

2.637*

1.374

1.896

2.958

6.765*

3.662

6.543***

2.032

1.997***

0.589

4.161***

1.211

3.874

3.452

13.507*

7.524

8.453***

2.468

2.162***

0.721

4.792***

1.813

5.339

4.246

20.226**

8.658

5.920**

2.723

1.834**

0.856

1.490

1.983

3.460

4.363

14.317*

8.590

9.923***

3.220

1.802***

0.650

4.126**

2.191

7.922

6.086

31.572**

11.171

8.150**

4.044

2.344***

0.715

2.077

3.077

6.203

7.106

22.279*

12.890

Cash Discount

-0.205

1.249

-0.938*

0.539

-0.557

0.786

0.847

1.906

0.346

4.339

Debit card cost

-4.279

3.046

-2.108***

0.548

-5.074***

1.304

-6.665

4.260

-13.882

11.371

-13.878***

2.060

-2.011**

0.879

-7.875***

1.211

-20.403***

3.146

-32.115***

7.893

4.802***

1.268

2.134***

0.520

4.515***

0.808

7.695***

2.148

8.228**

3.588

2.678

3.006

0.915

1.047

1.875

3.728

9.763*

5.392

12.164*

6.739

3.717**

1.669

0.712

0.888

4.066**

1.644

7.049***

2.597

10.967**

4.932

Credit Card Rewards

-3.720***

1.415

-3.003***

0.650

-4.513***

1.265

-4.313***

2.010

-3.720

3.959

Age

-0.121***

0.047

0.002

0.020

-0.067

0.045

-0.142

0.096

-0.301*

0.171

1.595

1.400

0.951**

0.462

2.338*

1.292

1.357

2.890

-1.257

4.952

5.437***

1.681

0.505

0.483

4.105***

0.893

8.565***

1.770

10.519*

5.778

-2.268

5.033

-2.898

2.934

-1.498

5.939

0.806

8.562

-4.879

14.873

High school

-1.555

1.877

-1.291*

0.731

-3.294**

1.325

-1.431

2.591

-5.619

5.751

College

-0.825

1.622

-0.782

0.634

-1.332

1.068

-0.684

2.387

0.907

5.046

-4.309***

1.724

-1.678***

0.521

-3.046***

1.112

-3.746

2.495

-8.959***

3.358

15.544

3.428

2.245**

1.123

8.638***

2.937

21.945***

6.594

41.665***

12.715

Negative Net Worth

$25,000-49,999

$50,000-74,999

$75,000-99,999

$100,000-124,999

$125,000-199,999

Greater than $200,000

Debit inconvenience
Credit card cost
Credit inconvenience
Overdraft

Currently working
White
Less than high school

Post-graduate studies
Intercept
2

0.0727
R / Pseudo R
0.0431
0.0525
0.0577
***, ** and * indicate significance at the 1%, 5% and 10% levels respectively. M.E. = Marginal Effect, S.E. = Standard Error.
indicates annual household income. Estimated using heteroscedasticity-consistent standard errors.

27

0.0797

Table 6: Credit card usage OLS and Quantile regression results (1597 observations)
th

OLS
Variable

25 Percentile

th

50 Percentile

th

75 Percentile

th

90 Percentile

M.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

5.31E-08

Net Worth

S.E.
7.31E-06

4.15E-06

5.56E-06

7.01E-07

6.09E-06

-5.65E-05

1.24E-05

3.38E-06

4.86E-05

-2.695**

1.246

-0.706**

0.277

-1.390*

0.722

-1.794

1.398

-7.763**

3.451

-1.696

1.639

-0.642

0.432

-0.322

1.073

-1.179

2.152

-0.049

4.980

0.333

1.776

-0.046

0.537

0.714

0.822

0.385

1.518

0.303

3.602

3.495*

2.048

0.181

0.563

2.429**

0.988

4.749**

2.394

11.177

6.940

5.873**

2.394

0.388

0.870

3.130*

1.582

5.943**

2.837

10.512

7.025

7.418***

2.779

1.754**

0.865

8.280***

2.836

10.484***

3.283

12.670

12.064

Negative Net Worth

$25,000-49,999

$50,000-74,999

$75,000-99,999

$100,000-124,999

$125,000-199,999

Greater than $200,000

15.892***

3.913

11.285***

2.960

14.364***

4.151

19.379*

10.715

34.847***

9.463

Cash Discount

2.739***

1.027

0.833***

0.237

1.661***

0.569

3.580**

1.570

4.559**

2.053

Debit card cost

5.357**

2.102

0.858

0.635

4.226***

1.526

7.560*

3.974

12.254**

5.116

Debit inconvenience

4.336*

2.520

2.279**

1.045

4.124

2.796

4.259

3.672

4.289

7.898

Credit card cost

-7.103***

1.029

-1.277***

0.327

-4.315***

0.800

-8.799***

1.158

-14.154***

3.114

Credit inconvenience

-6.332***

1.760

-1.923***

0.607

-2.826***

0.934

-4.797***

1.739

-8.926***

2.631

-1.241

1.257

-0.876***

0.202

-1.638**

0.687

-2.935**

1.434

-3.024

3.310

7.552***

0.849

1.541***

0.281

3.854***

0.483

6.948***

1.141

12.600***

1.989

Overdraft
Credit Card Rewards
Age

0.004

0.041

0.002

0.007

0.008

0.022

0.064

0.047

-0.073

0.110

Currently working

-1.942

1.209

-0.425

0.291

-1.300*

0.700

-0.754

0.923

-4.694*

2.602

White
Less than high school

1.682

1.487

-0.190

0.279

0.860

0.540

-0.078

2.534

1.091

3.111

2.244

3.974

0.006

0.727

0.041

2.294

-2.295

9.204

11.730

8.284

High school

-0.440

1.284

0.118

0.284

-0.608

0.853

-0.909

2.010

0.167

2.972

College

3.924***

1.204

1.409***

0.288

1.872***

0.561

3.836**

1.867

7.607**

3.350

Post-graduate studies

7.251***

1.501

2.035***

0.320

5.883***

1.229

9.903***

1.923

13.111***

3.476

5.381*

3.203

0.786***

0.434

2.544

1.898

7.131*

4.056

26.182***

7.464

Intercept
2

0.1904
R / Pseudo R
0.0656
0.1192
0.1675
***, ** and * indicate significance at the 1%, 5% and 10% levels respectively. M.E. = Marginal Effect, S.E. = Standard Error.
indicates annual household income. Estimated using heteroscedasticity-consistent standard errors.

28

0.1878

Table 7: Cash usage OLS and Quantile regression results (1892 observations)
th

OLS
Variable

th

25 Percentile

50 Percentile

th

75 Percentile

th

90 Percentile

M.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

M.E.

S.E.

-9.84E-06*

Net Worth

S.E.
5.96E-06

-7.00E-06***

2.06E-07

-8.07E-06***

4.38E-06

-5.21E-06

1.16E-05

-1.55E-05

2.68E-05

-0.103

1.335

0.202

0.395

-0.009

1.006

-1.675

2.346

0.014

3.429

-4.082**

1.606

-0.006

0.440

-0.544

0.730

-4.164**

2.100

-13.322**

5.268

-4.635***

1.642

-0.523

0.572

-0.861

1.130

-4.893**

2.135

-12.152***

4.070

-2.976

1.892

0.227

0.668

-0.183

1.192

-3.243

2.110

-9.347

6.070

-1.011

2.169

1.126

0.976

2.282

1.432

0.040

5.014

0.182

5.320

-0.860

2.403

1.190

1.198

2.944*

1.775

-1.354

3.752

-1.836

9.661

Negative Net Worth

$25,000-49,999

$50,000-74,999

$75,000-99,999

$100,000-124,999

$125,000-199,999

-1.440

2.825

2.944

1.650

4.676

3.020

-1.424

3.372

-5.673

6.872

Cash Discount

5.841***

0.951

2.218***

0.538

4.225***

0.702

7.472***

1.617

14.258***

3.488

Debit card cost

4.625**

2.224

0.051

0.907

0.663

1.910

4.127

4.221

17.428

12.491

Debit inconvenience

-1.666

2.232

-0.265

0.813

-3.271***

1.141

-3.588

3.148

-7.388

7.168

Credit card cost

-1.257

0.925

0.316

0.421

1.239

0.804

-0.004

1.858

-2.817

3.588

Credit inconvenience

0.421

2.559

-1.087

0.950

-0.539

2.005

-1.166

3.708

2.082

10.062

Overdraft

1.211

1.137

0.751

0.633

1.576

1.405

1.366

2.318

2.272

3.571

Credit Card Rewards

-0.374

1.002

-0.212

0.486

-0.005

0.786

-1.566

1.796

-0.891

2.690

Greater than $200,000

Age

0.109***

0.034

0.033**

0.015

0.083***

0.027

0.152***

0.058

0.340***

0.109

Currently working

2.635***

1.011

0.434

0.460

1.450*

0.802

3.437**

1.356

4.823*

2.467

White
Less than high school

2.728**

1.277

0.664

0.521

1.927***

0.732

2.425

2.330

1.539

4.159

6.339

5.766

-2.138

2.039

6.634*

3.834

5.247

14.394

23.398

26.045

High school

-0.759

1.281

0.915*

0.498

0.029

1.173

-1.173

2.586

-1.406

3.563

College

0.045

1.114

0.315

0.609

0.298

1.138

1.362

1.811

1.655

4.364

Post-graduate studies

1.659

1.320

0.953

0.684

1.829**

0.906

2.428

1.583

1.657

3.837

7.636***

2.713

-0.347

0.907

0.251

1.617

10.678***

3.587

21.546*

11.698

Intercept
2

0.0512
R / Pseudo R
0.0199
0.0254
0.033
***, ** and * indicate significance at the 1%, 5% and 10% levels respectively. M.E. = Marginal Effect, S.E. = Standard Error.
indicates annual household income. Estimated using heteroscedasticity-consistent standard errors

29

0.0583

Table 8: SUR both card usage regressions (1276 observations)

Debit Card Ownership
Variable

Credit Card Ownership

M.E.

S.E.

M.E.

S.E.

-1.90E-05**

9.54E-06

2.78E-06

7.74E-06

3.317*

1.950

-2.907*

1.583

1.421

2.575

-1.349

2.091

5.618**

2.619

0.900

2.126

6.903**

2.849

3.535

2.313

4.545

3.135

6.518**

2.545

9.103***

3.327

7.440***

2.701

7.453*

4.158

17.252***

3.375

Cash Discount

-1.090

1.337

2.262**

1.085

Debit card cost

-5.799*

3.166

4.622*

2.570

-13.788***

3.895

7.452**

3.162

Net Worth

Negative Net Worth

$25,000-49,999
$50,000-74,999
$75,000-99,999
$100,000-124,999
$125,000-199,999
Greater than $200,000

Debit inconvenience

5.429***

1.380

-6.274***

1.120

-2.063

4.047

-8.484***

3.286

Overdraft

5.135***

1.813

0.169

1.472

Credit Card Rewards

-4.325**

1.685

7.609***

1.368

Age

-0.134**

0.055

-0.002

0.045

Credit card cost

Credit inconvenience

Currently working
White
Less than high school
High school
College

1.224

1.572

-2.955**

1.276

7.017***

2.221

0.833

1.803

-2.604

6.907

1.077

5.607

-1.042

2.176

-0.171

1.766

-1.667

1.690

4.600***

1.372

Post-graduate studies

-4.875***

1.837

7.285***

1.491

Intercept

16.855***

4.605

5.370

3.738

-0.1101***

0.0863

0.1949

(22)
308.80***
120.44***
***, ** and * indicate significance at the 1%, 5% and 10% levels respectively. M.E. = Marginal Effect,
S.E. = Standard Error. indicates annual household income. Estimated using heteroscedasticity-consistent
standard errors. measures overall significance of the model. measures the correlation between equations.

Table 9 : Bivariate probit correct predictions

Both Debit and Credit correctly predicted
Debit = 0, Credit = 0
Debit = 1, Credit = 0
Debit = 0, Credit = 1
Debit = 1, Credit = 1
Total Correct

Correct
0
71
60
1182
1313

30

Percentage
0.00%
25.45%
18.69%
92.63%
69.40%

1276

Most Common Outcome (nave model)

Debit = 1, Credit = 1

Total
16
279
321
1276
1892

67.44%