December 10,2008
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How Did We Get So Plastic?, Pt. 4 –
– In all things, seek wisdom.Reports are already coming in of reduced credit card spending at a time where it always increases. This is only third time this has happened since the 1980s recession. Credit card spending has, largely, been reduced to only essentials like food and gasoline. The impulse credit card buying spree is over. Retailers are bracing for some of the worst times ever. On the other side, at least consumers are beginning to storing away cash ‘acorns' in savings accounts after coming out of the record low rate of zero percent savings. Of course, Wal*Mart is doing well and BoA (Bank of America), who tend to be wisely conservative are promoting ‘Keep the change' debit card benefits and offering zero-risk CDs.
How long this change will last is anybody's guess. It's true that people value things more when they cost more, so the extremity and duration of this recession will play a large part in lessons learned. However, just like 9/11, Americans are prone to latch onto diversions to escape what they don't like. For example, after the Great Depression, the credit industry was quick to respond with innovative debt alternatives. It wasn't long before bold consumption resumed. The Golden Era of Consumption followed in the 1950s. Then came the 1970s with the electronic payment revolution. This ushered in the "It's all about Me Generation" of the1980s with care-free credit card spending.
For the time being, at least, we will continue toward a debit card shift away from credit cards. This is necessary for right now. Hopefully, our consumers will not forget lessons learned from these times and hold them fast. Those still with us from the Great Depression will never forget those extreme times.
With greater wisdom, we may find boldness tempered by wisdom and return to credit cards again. They are much safer than debit cards, as far as thieves and mishaps. But for now, debit card use is projected to eclipse credit card growth with 29% debit use compared to only 19% credit card use by the year 2012. Any projection that far away is, of course, like predicting the weather. For now, any economic predictions beyond two years are synonymous to science fiction.