Wednesday, September 22, 2010

Credit Cards and Our Needs

Probably the most basic rule of sound financial management is not to spend more than you have. A corollary of this would be not to put charges on the credit card unless you've got the cash in hand to pay off the bill in full at the end of the month. Most people don't live like that, though -- if they did, the credit-card companies would crash-and-burn.

So what happens when people face tough times of unemployment? We hear on the news that lots of people are living on their credit cards. I suppose if you have to, you have to.

But here's my question. How would we spend our money during those tough times if we had to pony up the cash instead of paying with plastic? What happens when "limited cash" actually means that, when you run out, you're out?

Would we live with clothes more ragged and stained if the choice was food versus clothing? Do we remember the stories of people during the Depression who would put cardboard in their shoes to cover the holes in the sole? Would we forego a treat (be it a Pepsi or a new video game or an annual trip to Disneyland) that we indulge in because we can with the credit card? Would we walk to church instead of drive there; are we willing to stay home instead of driving to visit a friend? How would we treat illness or injury if there were no money for the doctor? What about giving presents at occasions where it's socially expected? Would we give up the phone service or the internet if we had to choose between that and food? What about the lights and where we set the thermostat? When do frugality-measures become excessive? Are we unwilling to face even minor deprivation? Will people look down on us for not living up to the standards that everyone else abides by?

If you live on a cash-basis, a shortage of income leaves people faced with decisions that may not be easy, and self-denial that may hurt. But credit cards make it easy to avoid those hard decisions: we can always pay for it later. But once you allow yourself to borrow, you have to wonder: am I really being as careful with the expenditures as I ought?


  1. Good post.

    Handing out cash is a lot more hurtful than swiping that credit card or even the debit card that takes it out of the checking account.

    When there is only x amount of dollars in your wallet you stop and seriously consider just what is the most important thing to buy and what can wait till another time.

  2. When Paul's job went down the tubes we used those credit cards for fuel for the car, car insurance, and registration. We needed those vehicles to look for a job and to work when we found one so it was a high priority. Sometimes credit just can't be avoided.

    I see lots of people who use their credit cards for frivolous things at the market when they are out of money but I also see people use them for necessities.

  3. I know what you mean, Kim! Sometimes borrowing for those sort of things is unavoidable. But here's what I'm thinking: Would a person still want to borrow the money if they had to go to a bank or a relative for a loan? If you need the car to look for work or to get to the job, then yes, if credit cards weren't available then you'd search out another way to borrow so that you had gas and plates and insurance. But if you had to ask a brother-in-law or a banker, I doubt you'd ask for money for a computer game or a newer jacket or a donut.