While many view credit as a negative force in American culture, sufficient arguments can be made which uncover the hidden value that credit plays.
Opponents to credit will tell you that debt, the antithesis of credit, has ruined many a life. While that is commonly stated, objective study of the facts tells a different story. The majority of credit users, 97 percent, do an exceptional job in paying their installments on-time and did so even during the worst financial crisis our country has faced, the Great Depression. The extension of credit today creates an increase in production of goods and services and more opportunity for all of us.
Man has always had a natural attraction for hedonism, the pursuit of pleasure. This attraction draws us into the use of credit to obtain things we believe will make us feel good. This philosophy could be labeled as unhealthy consumerism. However, installment debt also brings a balance to our lives when used appropriately.
Many cannot manage to save for future purchases simply because the thought of long-term financial management is painful and boring to them. That being the case, our natural tendency toward pleasure causes us to use credit to avoid the pain and hassle of savings and budgeting.
Installment credit therefore allows us to moderate our desire for pleasure by portioning out small bits of future happiness today through each installment payment.
While some clearly experience financial trouble in their lives and blame it on credit and debt, it is a very narrow view. Clearly, credit and debt are just things, numbers, mathematical statements. Credit and debt are neither intrinsically good nor bad. It is the use or abuse of credit and debt that breeds trouble.
My experience is that money troubles are never about the money. They are more about imbalances, overcompensations, a failure to see into the future, and a lack of necessary planning skills.
Critics of this viewpoint will say that credit burns and destroys the good within us and leads us to the brink of the “lake of fire.” Although these emotions and positions have existed since the dawn of recorded history, it does not mean they are accurate.
My experience in working with those who suffer from compulsive and/or poor spending habits clearly reveals that credit and debt is used to compensate for an emptiness in life or some other emotional pain, either past or present.
We also see a pattern of accidental financial mistakes that lead to an imbalance in our personal finances. These financial mistakes can be corrected and we help people do this everyday.
Is installment credit bad when used in balance with income and prudent savings? The answer clearly seems to be, no. Life in America would not have any of the comforts we enjoy today without consumer credit. Luxury items of yesterday have become the accepted necessities of today because we can afford to buy them on credit and have integrated them into our lives.
It was not all that many years ago when socks, chimneys and glass windows in homes were considered extravagances experienced only by a few. Do we really want to return to the five-year mortgage, book credit at the grocer, cars paid for entirely in cash, no loans for education, and pawnbrokers to cover monthly shortfalls in our budget?
Only a lack of financial clarity or awareness can bring about financial misfortune and not simply the use of credit. Some say people in this state are in a financial fog. It’s a good analogy.