Saturday, October 18, 2008

A Forgotten Anniversary : the Credit Card.

This year is the 50th anniversary of the Credit Card. Not much pomp and fanfare there. Had Brian Williams not mentioned it last night, I wouldn't have known.
Since fifty years ago this month, Americans have had a love affair with plastic but it's an affair that often ends badly (Brian Williams, NBC News)

In 1958, American Express created a worldwide credit card network. That same year, Bank of America created the BankAmericard in 1958, a product which, with its overseas affiliates, eventually evolved into the Visa system. (Wikipedia)
Yet, in this time of credit crunch, bad mortgages, and foreclosures, this may be a good time to reflect on this love affair with plastic.

Here are some telling figures :
By looking at these figures (provided by the Federal Reserve), one can certainly assume that the system has gone out of hands. Thanks to mass mailing playing on greed, millions of people live beyond their means.
When people start using credit cards to pay other credit cards, or when they depend on their credit for food you can only agree there is something wrong with the system.
In fact, some people
The average US household carries an average of $ 8,300 worth of credit debt.(NBC News)

Despite that:
82 % of Americans feel credit cards are essential today, with the same percentage saying credit cards provide a valuable service.
Of course, without a credit card in the U.S. there are many things that will be off limits - even going to any kind of emergency will probably require a credit card as a backup!
It seems to me that the current credit crunch and economic crisis may change this. In fact, the credit card system as it is not needs regulating. In any case, it is not a necessary evil :
In France, real "credit cards" as you can find in the UK or the US are actually unusual. Yet people buy stuff too and have embraced free-market economy (albeit with a few more regulations).
The closest equivalent to the credit card in France is the deferred debit card, which operates like a normal debit card, except that all purchase transactions are postponed until the end of the month, thereby giving the customer between 1 and 31 days of interest-free credit. The annual fee for a deferred debit card is around €10 more than for one with immediate debit. (Wikipedia)
The French may OWN a bit less but they also OWE a lot less. This has good and bad consequences.
In the US and the UK, the economy has been driven by household spending, consumption has been driven by credit, and a lot less in France, so that's why when there were periods of expansion France grew a lot more slowly than the UK and the US but conversely when it's slowing down, it will slow down in a more moderate fashion than the UK or the US. (on BBC News)

For more on the credit card, I would suggest an excellent Frontline Investigation called "The Secret History of the Credit Card", a program that should be shown in every school across the nation.

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