Prior to the mass use of credit cards people’s financial habits were largely restricted by the amount of disposable income they had. If an item was needed or wanted it had to be saved up for. When loans were utilized a traditional bank manager made a decision. The financially savvy saved in interest bearing savings accounts whilst those on low budgets saved for items by using available options such as layaways. The advent of credit cards changed good financial habits which had been learned over generations.
Credit cards mean easy borrowing and unless paid in full each month equate to debt. They represent the buy now pay later culture which has replaced the savings culture. Instead of earning interest on their savings consumers are willing to pay extra for their purchases by paying interest to the lender.
As there is no need to justify purchases people use them to buy what they can ill afford, and often become reliant on them to gratify their wants. However many people become reliant on them to meet every day needs. By continually paying interest on balances, consumers waste a portion of disposable income servicing interest charges, siphoning off funds which could have been directed into savings.
It became socially acceptable to flash the plastic and was often regarded as a status symbol. The more premier plastic a wallet contained, the more others became covetous of their neighbours lifestyle, failing to realise it was hollow and shored up by debt.
Reliance on credit cards is a dangerous habit which many came to understand when the economic climate changed and they were left with unmanageable debt. Lifestyles which had been financed by credit cards were curtailed and bankruptcies soared. Missed payments and defaults caused credit scores to go into free fall.
The reality of over reliance on credit cards caused many people to re-think their lifestyles. Fear resulted in many attempting to learn the age old skill of budgeting and living within their means. As consumers understand how precarious their finances are through reliance on credit, usage of credit cards has been replaced by more sensible use of debit cards.
The National Retail Federation conducted a survey which showed that by the end of 2010 credit card usage had fallen to its lowest level since 2002, credit card debt was being paid down and people intend to rely less on credit cards in the future.
Not everyone has changed their ways and many who have incurred bad credit records remain desperately reliant on credit cards and willing to pay exorbitant charges to sub prime lenders. Many blame the lenders for the financial difficulties they experience whilst lack of knowledge of the workings of credit played an equal part. A substantial number of credit card users are so eager to obtain a new card that the terms and conditions are ignored as they are signed.
Unless credit cards are used responsibly they have a negative impact on financial habits. Financially literate consumers can benefit by using credit cards for everyday spending, as never pay late or incur interest charges, but instead make use of cash backs, insurance coverage and purchase protection. If the financial habits of those who are over reliant on credit cards ever matches the habits of those who use credit cards astutely, lenders would have no benefit in issuing cards beyond raking in the merchants fees.