TOPICS > Economy

Americans’ Reliance on Credit Leads Many Into Debt

August 18, 2008 at 6:20 PM EDT
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The ease with which Americans can make purchases using credit cards and loans has led to increased personal debt. Jeffrey Brown speaks with Stuart Vyse, author of "Going Broke: Why Americans Can't Hold On To Their Money," about the roots of the country's financial troubles.

JEFFREY BROWN: It’s often said that much of this country’s economic growth in the last decade and more has been fueled by consumer spending, but that spending came with its own problem: ever-rising personal debt.

Overall consumer debt is up more than 20 percent since 2000. Today, the average American has more than $16,000 in debt, excluding mortgages. All this is the subject of a recent book, “Going Broke: Why Americans Can’t Hold On to Their Money.”

Author Stuart Vyse, a professor of psychology at Connecticut College, joins us now.

Well, let’s start with an overview. What happened to cause so many Americans to rack up large debts?

STUART VYSE, author: Well, we must start, of course, with the availability of credit. In the ’70s, credit cards became much more widely available, much more profitable for the banks, and pretty much anyone who wants credit can get it nowadays.

It’s tightening up slightly at the moment. But for a long time, more credit than you could use has been available to people who wanted it.

But in addition, the marketplace has come into our lives in a way that I think we really never anticipated. It used to be the case that, when you went home at night, you were not in the marketplace. You were just a person at home living with your family and you didn’t have to think about economic decisions, about buying things.

Now we can buy things any time we’re awake, at home, and we can act impulsively. And, of course, we have the wherewithal in the form of credit cards in order to make any purchase or many purchases possible.

JEFFREY BROWN: So the ubiquity of temptation, in a way. It never — it’s around all the time. Has that changed the psychology of spending and of taking on debt?

STUART VYSE: Absolutely. It was the case that in the past, when you were home, you didn’t have to worry about these things. You could plan to make a purchase later on in the future, but it was something that didn’t gnaw at you all the time and you couldn’t act impulsively.

Now we have to take on the responsibility of not buying all the time that we are awake, in many settings where we didn’t have to before. And the temptation is tremendous.

Paying in the future a problem

JEFFREY BROWN: Well, you use that word "responsibility." I mean, why do people continue to act in ways that seem irrational? In other words, why do they act in ways that take on debt and therefore decrease their economic well-being?

STUART VYSE: Well, there's this beautiful magic of being able to put off payment into the future. This is the problem with loans and credit cards, is that we don't have to experience the pain now. We actually put it off for our future selves to deal with.

And that's all well and good, as long as the income stream and our lives sort of proceed in a straight line. But things happen, and you can't always make those payments.

And so we have a sort of tendency to be overconfident and think that things will work out. And often they do, but sometimes they don't. And that is the problem.

JEFFREY BROWN: Is there an example you could give us? I know you interviewed people for your research for your book.

STUART VYSE: Sure. There was one young woman who had a very good job. She was a nurse. She had been employed ever since she got out of nursing school. She was single, but she lived with her mother. And they shared expenses.

They lived like sisters together, she said. And it was a very nice arrangement. But she also liked to shop. And she went out and racked up credit card debts. She always made those payments, and she never had a problem with it. She had a good income and low expenses.

But what happened was that her mother died unexpectedly and she was unable to live under those circumstances anymore. She had to rent her own place. She had to take on all the expenses of a life herself. And she could barely do that, but not pay her credit card bills on top of it. So she got into a situation where she just couldn't manage.

And at the core of that, of course, is lack of savings. She had not saved any money. And we're not in a situation where savings is talked about very much anymore.

But she should have been saving some money, putting it aside for that rainy day. That was a big rainy day that she experienced. But having a little bit of savings put aside would have helped a lot.

Making debt easy for everyone

JEFFREY BROWN: Well, it's interesting you say there weren't those kind of warnings. I mean, there are -- we hear occasionally the talk about the low savings rate. It's certainly a kind of mantra that's put forward. But you're suggesting that's not reaching the average consumer?

STUART VYSE: Not at all. I think that we should be seeing messages from our government, from our employers. It should be something that is talked about much more, the good feeling of having money in the bank, of being able to pay for things without putting them on credit, and putting money away.

This is not talked about at all. There are lots of programs that could be introduced that would make it much easier to do. I don't see those being advertised.

What I see is the opposite, a message that Americans should spend, that our economy thrives on consumerism, and that it's patriotic to do so.

So, in some ways, people are doing what they're told to do, what they've been asked to do. They're spending. And, of course, it's getting them into trouble.

JEFFREY BROWN: And, finally, what are the national implications here? We're talking about personal consumer debt. But how does that play into other economic problems for the country?

STUART VYSE: Well, I think that consumer debt drives much of what we're seeing now. Many of the people who are in trouble with their mortgages have borrowed against the house in good times. They've used the house as their savings account.

So using debt instead of cash to pay for things in one form or another has been a huge problem for us, and we've got to get a handle on it.

JEFFREY BROWN: All right, Stuart Vyse is the author of "Going Broke: Why Americans Can't Hold On to Their Money." Thank you very much.

STUART VYSE: Thank you.