Life Before Credit

When I was a young adult, my life was financially simple: Work, make money, pay the bills. It was a simple 3-step cycle. I did have a couple of credit cards, cards that I received the month I graduated high school. But I was terrified to use them. A little voice inside my head told me that if I couldn’t afford it at that moment, then I wouldn’t be able to afford it a month from now. For many years, that little voice stayed with me and kept me firmly grounded to my 3-step cycle.

After many years of seeping in credit, I’ve learned the hard way how having access to credit can financially doom you (maybe that’s a little harsh)  if you’re not careful. But, it has also made me think about the psyche behind borrowing money on credit. When did this become the “norm” for the typical American? How did so many of us buy into the “American Dream” by borrowing to get there?

First, I think I need to define the “American Dream.” To me, that means owning a home on a mortgage and having a car or two. Maybe it even means having some luxury items that are wants but not needs. This American Dream prior to the 1950’s wasn’t the norm. It became more normal after World War II when the government began offering low payment mortgage’s to WWII veteran’s and their families. Throughout the 1950’s and ’60’s, life was pretty good for the majority of Americans, or what was being defined as the Middle Class. Of course, I need to make a side note here, this “middle class” was mostly made up of white families.

This middle class was gaining buying power. And some of this buying power was based on credit. Of course the idea of credit wasn’t new. Even dating back to “The Ole’ General Store” of the Wild West days, stores would extend credit to their good customers. The idea was built on good faith. In the 1950’s, the Diners Club card was the popular charge card of the day. Charge cards were cards that had to be paid in full at the end of the billing cycle, or month.

• Side Note: Here’s a great story about the history of the credit card. It goes more into depth on the actual history than my glossed over version.

By the 1960’s, consumers had the option of revolving credit accounts. They could pay off the charges in monthly payments over time. Here is where the beginning of the debt cycle starts. As a population, most of the people with access to these cards would have been around the age of 20 years of age, or older. These people would have been born during World War II or earlier, a time of scrimping and saving for the most part (aside from the roaring ’20’s, but we all know how that ended). It makes sense that these people, as a group, would have been a little leery of racking up a bunch of debt.

It also makes sense that this generation, as parents, would have instilled their values on their children, who would have been adults around the 1970’s. Again, as a population, the amount of credit card debt in the 1970’s to early 1980’s wasn’t obscene. It only began to grow exponentially around 1982, or the Regan Years.

• Another side note: Here is a very in depth article on the rising debt of  the 1980’s.

What made the population of the early- to mid-1980’s begin charging everything, or living beyond our means? Was it Nancy Regan’s dresses? She never wore a dress more than once. Was it that Ronald Regan and Nancy Regan were from tinsel town and everything was opulent? Or, was it more media based? More often than not, the answers to complex questions are never black and white. The answers are usually based on a cause and effect relationship with multiple factors involved. Possible reasons why we became  mega-consumers: (I’m not a financial analyst, but these things seem to make logical sense.)

• Credit card companies began extending credit at a low minimum payment, allowing users to spend with the idea of paying it back in the future. (a very blurry future)
• Our current president and his wife had panache. They were celebrities and dressed nice.
• The advent of MTV opened up a whole new avenue of media.
• Debt to gross national product fell.
• Mortgages increased with home prices.

There are a flurry of other causes that lead us down the debt path, including the Savings and Loan scandal. However, with the our most recent economic melt down that seemed to affect the majority of our population, we may be realizing our mistakes and learning from them. A recent article I read said that the average American’s savings rate has increased to levels not seen in decades. There may be hope for us yet!