Credit, in one form or another, has been in existence as long as human beings have traded one valuable commodity for another, and indeed, modern day credit is a valuable financial tool that makes it possible for individuals and businesses alike to obtain the things they need in the present day and pay for them over time. However, since the advent of credit cards for individuals, which allow those individuals to borrow unsecured money for any purchase they choose, Americans have racked up almost $1 trillion in credit card debt, with the average American family carrying almost $10,000 of that burden on their own shoulders (Royal, 2008). With such major amounts of unsecured debt threatening the future of the most powerful economy on earth, the question of why so many Americans are in credit card debt is worthwhile to answer. This research will explore several different perspectives in order to attempt to explain this phenomenon; upon completion of the research, a better understanding of American consumer behavior, human nature, and modern economics will have been gained.
The Origins of American Consumer Debt
To understand why so many Americans are in credit card debt is to first understand the origins of the widespread consumer debt of modern America itself. As was mentioned briefly in the introduction, the concept of getting something now and paying for it later is as old as trade itself, but the so-called modern era of consumer debt in America can in fact be traced to the days after World War II. It was in this period of American history that several key socioeconomic events, so to speak, took place that set into motion what is seen in present day credit card debt. Chief among these was the feeling among millions of youthful Americans that they in fact were given a new lease on life, many having literally escaped death while fighting the war, and many others vicariously experiencing the same feeling. This instilled a “live for today” mindset in Americans, and compelled them to obtain the trappings of a comfortable life- new automobiles, spacious homes, modern appliances and more- without having the money to pay for them, but being able to obtain them on installment plans, whereby the consumer could pay for the goods over time. Additionally, the boom in newborns in the years immediately following World War II also led to a surge in purchasing on credit, thereby compounding the situation as well (Gedmin, et al, 2003).
Simply put, as America got back to the serious business of living well in the aftermath of World War II, the stage was set for what can fairly be categorized as an epidemic of credit card debt across the nation which, as will now be seen, has been fortified over the ensuing decades by a variety of phenomena.
Fast and Free Living
It would seem that beyond the obvious gratitude that many Americans have felt for their freedom and safety since the mid 1940s, there is also a certain level of overconfidence, bordering on arrogance that has become the American birthright. Because the average American does not have to concern himself with government instability, famine, violence in the streets, uncontrolled disease and the other problems that citizens of less developed nations face, a high level of comfort is instilled in the mind of individual as well as a sense of entitlement to have the finer things in life, whether or not one has the ability to immediately pay for them. Thus, it is easy for Americans to lull themselves into a false sense of security and overextend themselves with debt that they cannot readily pay back, or in the case of some, knowingly will never pay back nor try to pay back at all (Lopes, 2008). In this regard, what is seen is the development of a cultural norm, whereby the accumulation of uncontrolled debt is a commonplace occurrence and in some ways encouraged, much as the traits of frugality and thrift were encouraged in the generations of the past.
Fast and free living in America is also a major culprit in the credit card debt scheme. Because of the many advantages that Americans possess in terms of the previously mentioned high standard of living compared to other nations, safety, political stability and the like, Americans are able to ignore, for the most part, the obtaining of the basic necessities of life and instead dedicate large amounts of time to gaining of so-called creature comforts which are usually paid for with credit, as the expense of such items usually makes them unattainable by the cast majority of Americans by any other means (Murphy, 2002). This is not so say, however, that credit card debt is limited to the lower or even middle classes; the wealthiest Americans likewise frequently accumulate credit card debt, in even larger amounts than those beneath them in the socioeconomic scale, as wealthy individuals typically have access to larger amounts of unsecured credit and as such, are free to spend more money, more quickly, and neglect to pay it back just like everyone else in the nation.
As one can see, at least until recently, credit cards in America were available equally to the rich and poor alike; nonetheless, the question of where the credit comes from is still unanswered, and must be answered in order to add depth to the discussion of American credit card debt. Therefore, the origin of the credit cards themselves needs to be discussed at this point as well.
The Credit Cards Have to Come from Somewhere
Risking stating the obvious, Americans would never have been able to reach such monumental levels of credit card debt if the credit cards themselves were not accessible to the average person; therefore, it is crucial to understand how Americans have come to possess the credit cards themselves.
With the advent of modern communication methods such as television, radio and the Internet, it has become exceeding easy for credit card companies, many of whom are subsidiaries of some of the largest banks in the nation, to offer their products to huge numbers of potential customers, 24 hours a day, 7 days a week. Likewise, technology has made it possible for almost anyone to obtain a credit card in a matter of days, and instantly begin using that credit card, piling up credit card debt just as fast as they possibly can. If one does some simple arithmetic, and multiplies this phenomenon by millions of Americans and just as many methods of marketing credit cards, it is easy to see how hundreds upon hundreds of millions of dollars in credit card debts can in fact be amassed with very little warning. All of these credit cards, however, rely on borrowers to use those cards. Exactly where many of these borrowers are found is the next area of focus for this research.
College and Credit Cards
On any given day in the United States, college campuses large and small are infiltrated by squads of marketing personnel who frequently offer fun gifts as incentives for impressionable, young college students to complete credit card applications. Of course, a great majority of the students will do so merely for the benefit of receiving an instant gift for just a few minutes of their time. However, when some of those college students who completed the credit card applications actually receive credit cards in response to their request, the temptation is far too great, and those credit cards are used by the students for mostly discretionary items such as restaurant meals, drinks, flashy clothing, etc. In no time at all, even a small college campus could in fact be the epicenter for many credit cards and even more credit card debt. If one multiplies this by the thousands of college campuses across America, a dangerous trend emerges of credit card debt on the part of those who may be among the least likely to be able to repay it promptly, or at all.
Research also indicates that American colleges themselves have become unwitting accomplices in the credit card debt debacle, with colleges accepting credit cards as payment for tuition, books, meals in the campus restaurant, and more. Further, some shrewd lenders have made deals with college alumni associations, whereby specially issued credit cards pay a fee back to the alumni association for each transaction via their credit cards, giving colleges themselves a huge incentive for pushing credit cards on their campuses, as well as encouraging the frequent use of them as a means of fundraising (Norvilitis, et al, 2002). A vicious circle can clearly be seen on the campuses of the nation, and the beginning of a behavior that many of the students then carry on again in their future lives, thereby chaining themselves to their credit cards from early adulthood.
Consumerism in America
Earlier points were made that a big part of the problem of credit card debt is driven by the desire for Americans to obtain fancy material goods without having the real ability to pay for them. This naturally leads to the idea that if there were not so many tempting items on which to unleash the power of the credit card, those credit cards would not in turn become so frequently used. Therefore, the phenomenon of consumerism in America is yet another cause for American credit card debt.
Today, Americans can literally spend thousands of dollars in credit card debt without leaving their favorite chair; due to the proliferation of Internet shopping, cable television shopping channels, telemarketing and mail order, people can spend and spend some more in seconds which creates a constant flow of credit card debt, with no end in sight. Beyond this, there are infinite numbers of other options upon which stressed out and somewhat spoiled Americans can spend credit card dollars, such as flashy and exotic vacation spots, expensive technology and electronic gadgets, sporting goods and more. Basically, there are endless possibilities for the use of a credit card and thanks to the skill of modern advertisers, Americans are easily convinced that somehow, they need the things being offered to them, and that the use of a credit card to get them is permissible, even in the absence of any substantial plan for paying back the debt. Occurrences like this allow for credit card debt to remain undiminished, and even growing rapidly, as time moves forward (Klein, 1999).
Lack of Financial Education
For a nation which in the 21st century boasts one of the lowest levels of poverty and illiteracy in the world, the lack of financial savvy on the part of Americans has undoubtedly led to a sizeable portion of the American credit card debt problem present today. Studies show that over the past several decades, American public schools have sacrificed financial education in favor of the teaching of the use of technology, liberal arts, and other coursework. Because the financial education has fallen by the wayside, millions of Americans have reached adulthood not realizing that when they use credit, there are certain precautions that should be taken, and the long-term implications of excessive credit card use could seriously compromise the quality of life of all Americans because of the many problems that credit card debt brings with it, including bankruptcy, crime, substance abuse, etc (Grable, et al, 2006).
Perhaps a bit of serious financial education would in fact prevent the further escalation of credit card debt; while it is impossible to say this to a certainty, the lack of financial education and the increase in American credit card debt seem to go hand in hand. Therefore, a little education may in fact go a long way toward a major problem.
Racial Profiling and Credit Cards
Tying into the issue of overall lack of financial education as a cause of credit card debt in America is the issue of racial profiling on the part of credit card issuers. Few would argue that in America, many minority groups are marginalized in terms of educational and financial opportunities. Both of these situations make minorities’ prime targets for credit card companies for several reasons. Not having the knowledge base to allow them to make proper decisions about credit cards, slick commercials can easily entice minorities into getting credit cards, and in many cases, the cards are in fact presented as status symbols, having been advertised by celebrities and sports figures. Combining this with the financial needs that many minorities easily think they can remedy with credit cards, the growth of American credit card debt can be seen as something which minorities unwittingly perpetuate (Grable, et al, 2006).
It would seem that as long as there are those in America who are held back from the full realization of economic opportunity, there will be credit cards being furiously used as an attempt for the marginalized to gain some sort of equal footing with others. This is likewise quite pronounced in a class-conscious society like that which one finds in the United States.
The Birth of Cyber-Cash
Perhaps one of the reasons that Americans have so readily used credit cards without much consideration of the fact that credit card transactions in fact represent a commitment to pay back debts of real dollars in the future is because technology has essentially reduced the dollar to nothing more than an electronic impulse on a computer screen through the birth of so-called cyber cash.
From the earliest periods of recorded history, there has been some store of value that has been used as a medium of exchange; for example, in early agrarian societies, perhaps a bushel of wheat, a pound of fresh meat or a gallon of milk was exchanged for the services of a carpenter, doctor or blacksmith. Later, coins and paper money were developed, each of which represented a set value and prices were then set for other goods and services, thereby giving the money itself a certain value. The point to be made is that whether one talks of a bag of grain or a stack of coins, these monetary units were able to be physically held by people, admired by people, and in those sensory experiences, the money itself took on a certain level of power, respect and importance. When these commodities were spent, the spender actually felt their pocket getting lighter, their grain bin growing empty, and their wallet getting thinner. However, through cyber cash, that same unit of exchange no longer exists in physical form, but appears as numbers on the paper of a bank statement or upon a computer screen. What this causes is a distortion on the part of the consumer, in that the spending of cyber-cash exhibits very few tangible effects. Such is the same with a credit card- since the buyer is only signing a slip of paper or entering numbers via a computer keyboard, it is quite difficult to comprehend the spending of real money, which in this case leads to real debt, and in America’s case, real problems for the men and women of the nation (Guttmann, 2002).
Thro0ugh the proliferation of cyber cash, Americans are able to painlessly, and in some cases unwittingly, run through thousands of dollars via their handy credit card without even realizing it, and it is exactly this type of fast spending which has fueled the fire of American credit card debt.
Whether one looks at the issues of race, education, youthful inexperience or the desire to have all of the finest things in life without having to wait for them, the issue of American credit card debt seems to come down to one common denominator-free will and choice. Indeed, while it is seemingly easier said than done, if Americans would take the time to think about what they are doing before they use credit cards, they may in fact find better alternatives for the use of their credit card. That, in combination with an effort to seriously focus on paying back past credit card debt can eliminate much of the American credit card debt problem.
At the time of this research, the American government is making serious efforts to protect consumers from credit card debt, but in a larger sense, one cannot be fully protected from them. Therefore, in conclusion, once again it must be understood that the answer to America’s credit card problem begins and ends with the American people themselves, for in their hands lies the problem and the solution.
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