Are credit cards necessary? It depends on whom you ask. We are passionate about simplifying all aspects of life, and finances are no exception. Arguably, it might be the most challenging thing to simplify, but it could be the most important. Numerous financial gurus have books, blogs, and podcasts about the dangers of credit cards, so I will omit credit card statistics now. However, they help you know if you need something more concrete for decision-making on opening a line of credit.
Before we dive into some truth about credit cards and credit in general, if you are currently in debt, do yourself a favor and cut them immediately. This means all debt, including student loans; yes, that is debt, although most accept it as just another monthly bill they will pay. The only obligation we are okay with is a mortgage; we will share more details later.
The dangers of credit cards
We would rather not have credit cards; there was a time when we had zero credit cards. The points and cash back they offer come with a price; it’s marketing at its best! We continuously remind ourselves that if it’s free, we are the product. We spend more with a credit card; and attachment to money than cash or a debit card. Many others do as well, and credit card companies know this.
Why are credit cards a thing?
Our living standards have changed drastically over the years; we have become fixated on luxury as a culture. As an adolescent, I used to view luxury as the top 1% of the population’s standard of living—fancy cars, mansions, private jets, and so on. Now, I see luxury all around, at the most basic level. I see smartphones owned by children; most homes have a computer, TVs, new cars purchased every few years, and so on. Manufacturers know we have access to a line of credit and can jack up their prices. If we were all-cash buyers, would they offer all the upgrades? Would they spend millions on advertising to manipulate us into thinking we need their product? Extravagant living has now been framed as ordinary living; we have traded our time for things.
Our homes’ sizes increased over the 1920s; on average, families were of 4, and home size on average 900 sq. ft. Today’s standard home is 2500 sq. ft. with half the size of occupants. What has changed? We have been told that buying more consistently will lead to a fulfilled, happy life. Thus consumerism was born.
Mortgages have changed significantly as well; late 1920s, a typical mortgage term was 50 percent down, and it took five years to pay off the balance. This is much different than we see today, with 5 percent down and 30 years to pay off the balance. So, do we own our home more or less than 100 years ago? We own less, and we are busier than ever, families fractioned, holding on to jobs we don’t care for, all for the sake of luxury. “No bells, no whistle, please,” is my new mantra.
How and when did Consumerism change?
American Consumerism increased during the 1920s due to technological advances in communication, transportation, and manufacturing. Americans moved from avoidance of debt to the concept of buying goods on credit installments. With improvements in transport and manufacturing technology, opportunities for buying and selling became faster and more efficient than ever before.
Frederick Allen, a famous historian, wrote, “Business had learned as never before the importance of the ultimate consumer. Unless he could be persuaded to buy and buy lavishly, the whole stream of six-cylinder cars, super heterodynes, cigarettes, rouge compacts, and electric ice boxes would be dammed up at its outlets.”
Edward Bernays, a pioneer of the public relations industry, wrote in his classic 1928 book Propaganda, “Mass production is profitable only if its rhythm can be maintained—that is if it can continue to sell its product in steady or increasing quantity.… Today supply must actively seek to create its corresponding demand…and cannot afford to wait until the public asks for its product; it must maintain constant touch through advertising and propaganda…to assure itself the continuous demand, which alone will make its costly plant profitable.”
In the 1950’s he was also one of the first to employ the concept through advertising, the mass could be manipulated into believing they need the item, and the seller shifted from marketing, “we have this item,” to “you need this item.”
Hazel Kyrk and Theresa McMahon put forward the idea; that new needs would be created, with advertising brought into play to “augment and accelerate” the process. People would be encouraged to give up thrift and husbandry to value goods over free time. Kyrk argued for ever-increasing aspirations: “a high standard of living must be dynamic, a progressive standard,” where envy of those just above oneself in the social order incited consumption and fueled economic growth.
Why and when to get a credit card
The points and freebies offered by credit card companies may not be in our best interest. Consumerism shifted from “needs” to “desires” of goods. Manufacturers began offering a payment plan for consumers to purchase more goods than they could afford. This led to the first universal credit card in 1950, introduced by the Diners’ Club.
American Express 1958 launched another major card of this type: travel and entertainment. Bank of America soon came on the scene, offering a card that became the first successful, recognizably modern credit card. The credit card industry started a craze that began to take shape in the 1950s and early 1960s.
Reasons to not get a credit card:
- You’re in debt
- You do not have an emergency fund
- You’re not financially disciplined
- You will spend above your means
- Job loss
- Too easy to use
- Stress
- Don’t understand how it works
The main takeaway is being aware of the larger picture and the technique and precision in adverting that shift our decision-making driving us to believe credit cards are the usual way of life.
There are a few reasons to consider when obtaining a credit card; why and when? These are not rules but rather ideas to share.
For the purchase of our home, we did get a credit card. Hence a line of credit was opened. The bank under-riders requested that we have a line of credit to approve our mortgage loan. In today’s society, you may need a line of credit open but tread carefully with what comes with it.
Reasons to get a credit card:
- Qualifying for a mortgage
- Travel: hotel incidentals, car rentals (often request a CC).
As you can see, the list scale is quite different, it’s a stretch to say you need a credit card, but there may be a time when you find it necessary to achieve your goal—keeping in mind credit cards are not a wealth-building tool but a tool to establish your creditability of not needing to borrow money.
Since we have lightly discussed debt, I find it purposeful to explain further our rationalizations for financing a home and why this is a bit different than credit card debt. This can be argued, but it’s essential to clarify our stance.
Owning a home is one of the ways we can hedge against inflation; this; is the main reason for financing a home at a fixed APR rate. In our current economy, rents increased by about 20%, which will fluctuate historically. Owning our home has given us some stability in hedging against inflation while building equity; it is an asset, not a liability. It is the one debt we are ok with now, and we needed a credit line open to obtain a bank loan.
In conclusion, credit cards are best avoided, but in today’s society, there may be some validity in having one. It would be best to understand their ploy; freebies are not so free.
Photo by Ales Nesetril on Unsplash