Credit Cards Financing The American Dream

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Michael W. Jackson A02-92-6779 Warren 11A 7 December 1999 Plastic: Puts a Car in Every Garage and a Chicken in Every Pot "I'll charge it!" is a common saying in today's credit based society. The ease by which consumers desire to fund the American Dream on a plastic card with the mentality of "buy now, pay later." is a shocking realization displaying the integral nature of credit. This newfound reliance on credit, however, offers many troubling concerns surrounding the society's overall susceptibility to economic instability comparable to that of the Great Depression. Credit is now a marker of overall value in society. It is the means by which one gains the ability to buy a house, a car, and even the food on the table. This creation of credit does not come without its drawbacks, as previously mentioned, the economy is susceptible to instability akin to the Great Depression and furthermore a person's existence and societal status are determined by their credit. The focus of this inquiry will delve into the development of installment purchasing, the development of credit card companies, and the integration of electronic fund transfer (EFT). The outcome of this system is a society in which people are pushed to over extend themselves in hopes that they can keep up with the Joneses. The installment plan or payment plan is not a new idea, however it was revolutionized in the early 1900's into a system which allowed many people the freedom to live their own American Dream. The installment system was developed in response to the new idea of credit. Credit was the product of local merchants to entice customer

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loyalty. An example of this is when a family would be paid bi-monthly and the period of time between paychecks would cause the family to run low on funds producing a need for an ability to buy on one's word. Stores, in turn, to maintain their customers decided to extend a line of credit to the family until payday thereby creating the first forms of credit. Soon to follow was installment purchasing which was best captured in the durable goods market. Durable goods are goods that are used in the home or marketplace such as a car, a stove, a washing machine, and an oven. These products all suffer the wear and tear of life and in turn need constant maintenance. These products were high-ticket items and as every American desired to have the latest and most advanced products a need arose to allow people to pay in installments. The SearsRoebuck Company was the first to start this system as it realized customers that could pay in payments shopped more frequently than customers that paid in full (Hendrickson 54). The next region influenced by installment buying was the automobile industry that desired to have every American own a vehicle. The Guaranty Plan was developed to assist the dealer in allocating inventory and paying for the vehicles on the lot. The dealer was now floor-planning the vehicles that allowed Guaranty Bank, the holder of the title, to negotiate a deal between the customer who buy the car and their bank (Calder 135). The market for financing vehicles was not a single business for long. General Motors developed its own division of installment buying with General Motors Acceptance Corporation. The development of installment purchasing wetted the pallet of Americans eager to have their own car, radio, and washer. This desire for the extravagant in life fueled an industry that is integral in the development of credit. This field however only further removed the personal nature

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of consumer and vendor to the ranks of impersonality and automation in the development of payment computers. Credit Card development was the second significant move in the history of establishing a credit system for Americans. The desire for a means to replace large bulky sums of money for the protection of a traveler is not an uncommon idea. In medieval times knights would use a special ring to mark a bill to protect themselves from thieves and this stamp could be taken to the knights castle and exchange for the value in currency. The first credit card was the Diner's Club Card (Mandell 200). This card focused on the business traveler that would need to entertain guests at restaurants and in turn offered a way to not carry a wad of cash in one's back pocket. This development led to the creation of a wide range of credit cards including the most common today, Visa and MasterCard. With the development of these financial devices a system of rating ones ability to pay off a debt developed in the form of a credit rating. The credit card companies offered Americans, already hooked on installment purchasing, the ability to now purchase goods and services not based on actual cash but on the credit limit set on a card. This development pushed for the over-extension of Americans to purchase the products they desired and not worry about the bill as they could pay it in low monthly payments with minimal service charges and interest. Through this credit system a person's ability to pay was defined and then evaluated as a form of worthiness. This new factor has led to the development of a society deeply rooted in credit in which a person without credit or poor credit has almost no chance to purchase anything of great value. The credit system developed from these cards allowed the banking system to develop a highly skilled network of banks to allow for the extension of credit nation wide

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(Galanony 34). The credit card with its benefits has its sincere problems ranging from fraud to a more common ability to hang one's self in debt. The bank system today is approaching a paperless system, one in which all transactions can be carried out without the need for meaningless paper shuffling. The ability to electronically transfer funds (EFT) is a new and considerable advancement in credit as it develops an instantaneous network of branches able to make a decision on one's credit worthiness (Galanoy 46). The desire of banks to impose this "big-brother" like network of data is to gain insight in consumer spending but as well move to unify the banking system. The EFT system is a means to observe all transactions of a person during the course of their lifetime and through this development one can model the type of person by their purchases. The EFT system developed a convenience for consumers however it opened buyers up to a world in which a number can be used to track them. The EFT greatly reduces the amount of privacy once held in the banking world, as cash in anonymous, and breaks down the barriers among financial institutions allowing them to gain a limitless amount of knowledge on the assets of anyone. The development of electronic banking seems a step in the right direction for many consumers however the lack of privacy it condones is unacceptable as well it begins to divide society into classes based on credit worthiness. Credit is an entity in society that plays an integral role in all purchases but more significantly in the well being and happiness of all consumers. Credit was developed as a means to allow a consumer to buy more goods through the belief that they could "buy now, pay later!"(Calder 145) Credit, today is a different entity altogether as it is now used in the purchase of durable goods that need a significant investment by a financial

Jackson institution. Credit is a necessity and it must be stressed that if a person desires to buy a car or a home he must establish credit. The terrible truth involved in this reality is that unless society changes it ways concerning the importance of credit, society will proceed to overextend itself and in turn produce an economy ripe to fall as it did before the Great Depression. The American Dream to have all the amenities that life can afford has caused society to relinquish its privacy in hope that it will be able to buy anything anywhere in the world.

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Works Cited & Consulted Clader, Lendol. Financing the American Dream. New Jersey: Princeton University Press, 1999. Galanoy,Terry. Charge It: Inside the Credit Card Conspiracy. New York: G.P. Putnam's Sons, 1980. Hendrickson, Robert A. The Cashless Society. New York: Dodd, Mead & Company, 1972. Mandell, Lewis. The Credit Card Industry: A History. Boston: Twayne Publishers, 1990.