Page 50 - Workbook1E

A Financial Bondage from “Buy Now, Pay Later”
Rise in Tempting Consumer Credit
After World War II, greater availability of consumer credit drastically increased the number of Americans in debt. The large industrial base created by the war effort was capable of producing more goods than people could afford to buy. So marketing experts introduced three new strategies still enslaving American consumers today:
(1) The Easy Payment Plan. The strategy was to advertise a low monthly payment instead of the total cost of merchandise. Consumers were persuaded to shift from saving to pay cash for things, to only considering how much the payments would be.
(2) Long-Term Mortgages. Long-term G.I. housing loans were offered to veterans returning from the war. Soon long-term mortgages became the standard of home finance. Thirty-year mortgages became the rule. Long-term car loans soon followed and are now at 5 years and getting longer over time.
(3) Credit Cards, Bank Guarantees, and Lines of
Credit. Since no collateral was required, credit became easy for Americans to obtain. The high interest rates and fees charged made them very profitable for the lending companies. It became easy for consumers to buy almost anything on credit.
Since then, consumers have been bombarded with advertising messages urging them to use credit. Generations of Americans have grown up with the idea of “buy now, pay later,” and living beyond one’s means is thought of as a normal lifestyle.
Easy credit has changed the way people think about and spend money. The biggest change is that credit has turned most individuals and families in America into debtors—with all the pressures and burdens of debt.
If you’re in debt, you’re not alone. According to the Federal Reserve, Americans are in $864.2 billion of credit card debt, more than $15,587 per indebted household as of July 2012.
Dangers of “Buy Now, Pay Later”
Proof of how dangerous it is to “buy now, pay later” is all around us.
The Enron and WorldCom disasters early in the 21st century show how relaxed credit policies can bring on loan defaults and bankruptcies. Failed savings and loan institutions and the resulting $500 billion bailout of the 1990s placed our country in severe financial danger. No one is immune from the dangers of debt—governments, big business, families and individuals are all hurt by its over indulgence.
“The world is too much with us... Getting and spending, we lay waste our powers.”
~ William Wordsworth
46 Workbook 1: Building a Spending Plan that Works