Credit cards have had an undeniable effect on society. Many consumers today probably still remember a few decades ago when credit cards were in their infancy and, at that time, were considered to be more of a novelty. People enjoyed the newness of them, along with the convenience, but life was certainly not dependent on carrying a plastic card.
Boy times and perspective have changed.
The world has significantly evolved since those early days of using credit cards. When the credit industry was coming of age, the philosophy relating to cards was very different from what it is today. Carrying a card was, in many ways, a symbol of prestige. Fast forward a few decades and it is often viewed upon as a symbol of liability.
During the late 1980s to early 1990s banks and other creditors began sending out applications and issuing these handy cards to the masses with pre-approval or easy approval. No longer did these plastic cards signify anything special, nor did it necessarily mean that a consumer had impeccable credit. Which leads to thinking of the several ways credit cards have transformed society since their inception.
1. Convenience and Risk of Increased Debt
Thanks to credit society has, in many ways, become an instant gratification one. The convenience is great, but if people aren't careful there is a risk of increasing personal debt. Theoretically, the "buy now, pay later" approach is an attractive one, but the pay later must eventually happen. People put charges on their credit cards for things they want today with thoughts of paying tomorrow. The problem is though, for many, tomorrow never comes. Or people lose track of spending and don't realize how much they've spent until after the monthly statement arrives and they find it's beyond their means.
As a result, credit card interest compounds and those initial (likely small) balances can rapidly grow to become monstrous ones. Late payments equate to higher interest rates which inflates the money owed even more. Debt associated with credit has a tendency to snowball, and some people get too attached to using credit and end up going down a path that brings destructive consequences.
Due to the ease and convenience of credit card spending, many have fallen into debt. According to the numbers published by Nerd Wallet, in the United States the average household carries close to $130,000 in debt with more than $15,000 of it being credit card debt. Total card debt in the U.S. is $712 billion. 1
Creditors do not help the issue as they are always too happy and very accommodating in highlighting "minimum payment due" or offering attractive low or no interest rates, only to significantly increase them later. In an article published by NPR in August 2015, it highlights the "no interest" introductory rate that can last for a year to 18 months. The article notes this is a relatively new concept when looking at the history of credit, but it is a lucrative one for the industry.
"It seems a little crazy that a company would let people essentially have free credit for such a long time, but the companies understood a key fact about credit card customers: Most people don't pay off their balances," says the report. 2
However, instant gratification does not always equate with irresponsibility. Along with the debt statistics Nerd Wallet published, they did some digging into why card debt is so high. Findings highlighted the cost of living has outpaced income growth for the past 12 years. And increases in expenses such as food, medical care and housing have "significantly outpaced" income growth. People have expenses that must be paid and when the cash runs out, what's left? Plastic.
While the convenience and instant gratification capabilities can be considered positive, in this respect, it is a negative effect as well. These methodologies of thought are what lead to debt, and/or a false sense of security. Once someone tumbles deep into the abyss of debt, this is a difficult hole to climb out of and can ruin a person's financial health status.
2. Credit is Often Preferred to Cash
Additionally, in many ways, credit cards are a necessity in today's world. It is hard, for instance, to rent a car or a hotel room, book a travel ticket or make other kinds of reservations without a verified credit card. Many online transactions require a credit card and those who either choose to not have plastic or cannot get approved for new plastic are often out of luck. Debit cards may sometimes work, but this payment option often comes with some hurdles with some types of rentals. While the industries are making changes allowing people to rent without a card, they don't typically make it easy for these consumers.
A far cry from the cash transactions of years ago when everyone preferred actual money.
The theory behind this is that businesses want guaranteed payment. The trust issue is eliminated, and merchants don't want to or have to worry about bounced checks or damages incurred after something has been paid for by cash. Credit cards offer a way of tracking and merchants are guaranteed to get their money when they demand consumers use credit cards; they know the bank will issue them their payment.
It used to be nearly impossible to rent a car without credit. That's changed a bit, but the industry generally makes it a lot easier when consumers use their cards.
3. Offers Lots of Flexibility
Convenience is an obvious side effect of credit cards which society enjoys. No longer do people have to worry about doing their transactions around bankers' hours. In the past these were typically 9 a.m. to 3 p.m. (at least until ATMs came along). Credit cards effectively ended the problem of needing to have cash in hand when making purchases. People can also do business with virtually anyone, no pun intended, in the world.
Since banks are the guarantor for payment, there are no worries or concerns about payment, opening up options for consumers. Consumers are now free to find more affordable options or attractive merchandise. There are no limitations thanks to credit cards. Additionally, for those who are conscious with their spending, credit cards offer a convenient way to pay bills, all in one place, which is a time saver and orderly method for personal record keeping. For those carrying rewards cards, there are bonuses and opportunities there too.
4. Financial and Identity Theft
Credit cards open up an avenue for theft and stolen identities. For instance, skimming is a popular criminal activity. And with data breaches becoming the norm more than the odd occurrence, this too makes people vulnerable for financial and identity theft issues.
Additionally, with credit card applications freely available and pre-approved applications consistently arriving in the mail chock full of personal information, this too opens the floodgates for fraud.
Credit cards have transformed society. What started off as a symbol of stature and high regard has become a pictogram of debt and of no special standing. These cards are not just a convenience, they have become a way of life. In a digital age, card carriers and merchants who take credit treat plastic as a necessity. (If you have ever bought a large grocery order paying by cash in recent years, you'll probably know firsthand what I mean -- ever get that puzzled look? The one that says "What do I do with all this cash?" look?).
Technology has dramatically transformed how we operate and it'll be interesting if to see where the next several decades lead us. With virtual wallets, online money accounts and plastic, cash is far less needed than it used to be.
The future of what technologies will be used to make purchases has yet to unfold, but chances are life is always going to be tightly connected to credit with far less emphasis on cash.