Let’s face it; the majority of Americans are in debt. Foreclosures are at an all time high, and most people have either declared personal bankruptcy themselves or know someone who has.
But it hasn’t always been this way. At one time, debt in America among the middle class was uncommon and few people lived above their means. This all began to change in the 20th century.
Here is a brief history of debt in America.
First Loans for the Working Class
Working class people first took out loans in 1928 that were offered through the National City Bank of New York. These loans were provided with an interest rate of 12%. This was very profitable for the bank because the interest rate was relatively high and very few people defaulted on the loans.
Loans became more even more common place among the middle class in the 1930’s during the Great Depression, when the government urged banks to provide loans for modest houses and cars. At this time it became more possible for the common person to purchase a home and car, and the dependence on the use of credit to accomplish lifestyle goals began.
After World War II, the U.S. government again stepped in and began to back home loans for veterans, and by 1970, several government agencies began to guarantee home loans. This trend continued, and by 1989, nearly 40% of all home loans in the U.S. were backed by the federal government. At this time the government also began to get involved in student loans as a means to enable the masses to pursue higher education. By this time, the average American’s dependence on debt, and the U.S. government, was fully in force.
1950 credit cards were the brainchild of Frank McNamaraof New York’s Hamilton Credit Corporation. The purpose of the credit cards was to provide affluent businessmen with a convenient means to make business-related purchases. They began being used in 1955 under the name “Diners Club” and were accepted at 27 restaurants.
Not wanting to miss out on all the fun (and profits), American Express jumped into the credit card game in 1958 and was soon followed by the Bank of America, with the creation of the BankAmericard. The BankAmericard grew in popularity and in 1977 became known by the name, Visa. Visa is now the most popular credit card in use and is accepted almost everywhere, including many nations worldwide.
Although credit may have at one time been a good thing that enabled the average family to own a home and a car, the use of credit has quickly spiraled out of control, and many people purchase items on credit that they really cannot afford.
Thankfully, due to extreme financial difficulties and through teachings of people such as Dave Ramsey, many Americans are going back to paying cash for as much as possible, and a few brave and industrious souls are even paying cash for homes.
Although it is unlikely that it will ever become common to pay cash for homes, paying cash for all other expenditures is indeed a worthy goal. Perhaps the future history of credit in America will show a reversal of the financial trends that have been happening in the U.S. since the Great Depression.