Stuart Vyse is Professor of Psychology at Connecticut College, in New London. In his new book, Going Broke: Why Americans Can’t Hold On To Their Money, he offers a unique psychological perspective on the financial behavior of the many Americans today who find they cannot make ends meet, illuminating the causes of our wildly self-destructive spending habits. In the article below he looks at how credit cards lead to debt problems. Read Vyse’s other posts here.
Suddenly cash isn’t quick enough for our fast-paced world. If you want to be happy and efficient and avoid the critical stares of cashiers and fellow customers, you need to swipe or tap a card and keep the line moving. According to the latest round of credit card commercials, checks and cash are just so 20th Century.
But innovation in spending can be the mother of insolvency. Every new banking convenience brings a new challenge to our self-control. People who pay with plastic are willing to pay more than those who pay with cash, and when asked just minutes after a purchase, swipers are much less likely to remember how much they spent than people who pay with cash or a check. No wonder we are having trouble living within our means.
Credit card companies get much well-deserved criticism for high interest rates, opaque rules, and predatory fees. The “Credit Cardholders’ Bill of Rights Act of 2008” (H.R. 5244) recently introduced by New York Representative Carolyn B. Maloney would provide much needed protection against arbitrary interest rate changes, inadequate disclosure of rules, and other abuses of the industry. But the worst things the credit card companies do they do with our consent— perhaps even our encouragement.
Credit cards have always given us the pleasure of purchasing while putting off the pain of payment, but when they were first introduced, credit cards could only be used when we were out in the world, eating at restaurants or shopping at bricks and mortar stores. The transaction required considerable effort on the part of a clerk who made a paper impression of the charge plate and called the bank to see if we were good for the money. With the advent of electronic banking networks and magnetic strip cards, going into debt has become a self- service enterprise that can be conducted at ATMs and vending machines wherever we find them.
But much of what plagues us about credit cards is not the fault of the banking industry. Most of our struggle with over-consumption and debt has been created by clever retailers who have found new ways to get us to cough up our account numbers. Credit cards combined catalogs and 800-numbers brought impulse shopping home, and the internet gave us one-click buying. Today, cell phones and wireless PDAs make it possible to spend almost anywhere. Not long ago the retail marketplace was only open at certain times of day, and we had to travel to get there. Now our every waking minute can involve decisions about whether or not to buy.
The credit card companies and retailers know we are less prudent when we act quickly, and they have refined the technology of the shopping transaction down to just a few seconds. No time for second thoughts; no time to consider where your money is going. Just keep the line moving.
It’s hard to argue with innovation. Technological development has fueled our economy and kept the United States competitive in a shrinking world. But if as consumers we hope to enjoy a life that is free of debt and anxiety, we should recognize that, after a point, all this convenience is a curse, not a blessing. Yes, it may slow up the line to go back to a cash-and-carry lifestyle, but if we use that extra time to think, we might just discover what we really want. In many cases, we won’t need a credit card to get it.