One of the things that stick with you if ever you’ve grown up poor or without much means at the start is that old fashioned sense of thriftiness. If you don’t have the money to buy something, you save up for it before you attempt to buy it.
Unfortunately in most Western societies like the US, credit cards are the norm and not the exception. You don’t have the cash yet, so you signup for an installment plan to buy an appliance.
Fortunately there are credit limits in place, and credit scores help sellers judge who they should sell to.
Maybe it’s time as a society to reexamine our views on debt and buying on credit. It’s not necessarily bad, but being too comfortable with it sometimes makes us reach for debt as a first resort.
It’s of course another thing if the revenues arrive in an irregular manner, but you know that they’ll arrive. Credit does help to smoothen the availability of money for spending. If you feel the interest incurred is worth the convenience of waiting for the actual revenue to arrive, then it is okay.
The problem is when we misjudge our ability to pay for the things and services we’ve bought, and come up short. We end up being delinquent in our dues. Many economic groups, like the Federal Reserve Economic Data (FRED) group, monitors the status of credit delinquencies.[1]
It also shows up in the way we run our government affairs, which is even worse. At least with our credit cards, the card company can stop us from making a purchase. Credit scores affect our ability to use the debt. But the government, if unchecked, can keep spending and spending without worrying about how much debt has been accumulated. Only the possibility of currency failure, when we realize that there is no way that the debt will ever be paid, might stop it.
But it all comes back to the way we Americans view credit. If it is something that we reach for by instinct, that is what sometimes gets us into trouble.
The problem is as the Fed keeps increasing interest rates or hold it for a long time at a high rate, the likelihood that more expensive debt rates will negatively impact businesses and industries becomes higher. Hence there is an increased possibility that some people and businesses can’t make their monthly debt installments, hence they default. That is because their revenue streams like salaries, businesses and the like might get impacted.
As an immigrant who didn’t use credit when I was starting out, I still have that innate sense of being careful on what I buy given what I’m earning. Credit is just a tool, but it needs to be used wisely. You need that sense that unless you know how you’ll pay for something and when, don’t use debt as a crutch.
Don’t ever feel rich that you have many assets bought on credit when you haven’t fully paid yet for those goods and services. Maybe it’s time for all of us to relearn how to collect our earnings and wages first, save up, then buy something when we have the money as a first instinct.
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