The benefits of debt and credit

When you, and millions of others like you, buy with credit, you’re fuelling our economy by increasing the demand for goods and services. Your spending creates work, jobs, and wealth for the people who provide those goods and services— and it brings money in interest payments to banks and other lenders. The money from your spending encourages innovation and invention as people look for ways to design better products and new, more efficient ways to deliver services to sell to you. And that growth and innovation is what moves all of us, over time, to a better life.

That’s the big-picture benefit of debt and credit. At the individual level—yours— credit has immediate benefits, too. Used carefully, it allows you to buy what you need now and pay for it out of your future earnings. Credit in the form of home mortgages is the lever that allows ordinary people to own their own homes and gradually build a valuable investment for their future. Student loans allow people who couldn’t otherwise afford it to attend school and learn skills that increase their earning power.

Until the early 1970s, credit was available to most people only for significant purchases—a home, car, or big piece of furniture—where the lender had something valuable to recover if the borrower fell behind in the payments. Lenders were cautious about loans and made sure they had an easy way to recover the money if anything went wrong. For most purchases, people saved until they had enough to pay cash.

That changed with the introduction of credit cards in the 1970s. Lenders discovered a huge and profitable new market of borrowers. And we, the credit card spenders and borrowers, discovered the convenience of cash-free spending and the pleasure of getting what we wanted without waiting until we had the cash to pay for it. Sure, some people got into debt trouble and ended up unable to pay 8their credit card bills. But the money the credit card companies made on the majority of customers who kept up with their payments more than balanced out those losses.

Which leads us to where we are today. We live in an age of easy credit. And that requires a new kind of financial discipline and self-control. Credit makes it easy for us to get what we want. But it also makes it easy to get into serious financial trouble.