Through some discussion about placing blame for poor money management, we managed to gather several differing opinions about the source of the problem. Kids with no skills and parents who don’t teach seemed to be the biggest culprits, followed by schools without money management classes (which, when attempted, do more harm than good), and finally if at all, the credit card companies.

We have a litigious society in which people like to displace blame to corporations, who have the big packets to pay for damages, yes. And on the other hand, we have people who believe companies should promote their products however they want, and blame falls squarely on those naive enough to believe the advertisements.

An article in the latest issue of the University of Illinois Law Review says that credit cards, by design, take advantage of deficiencies in the human brain. (Link courtesy of Consumerist.) Here’s a summary of the author’s problems with credit cards:

* Banks that offer loans screen applicants thoroughly but much less rigorous screening takes place when those loans are in the form of credit cards.
* Individuals that take advantage of banks’ products, such as loans, are penalized by higher interest rates on their credit cards.
* Marketing techniques and inventives are designed to encourage debt.
* Credit card payments reduce sensitivity to price and promote impulse buying.

I am living proof that humans can break down the cognitive barrier that credit cards are designed to manipulate; if it weren’t for credit cards, I wouldn’t be earning cash back on every purchase and several recurring bills.

Yet, perhaps I do spend more because of my access to credit than I would otherwise. That may have been true several years ago. Once again, I’ll use my notebook computer as an example. Five years ago, I used credit to buy my current laptop, which recently died. Prior to the purchase, I had been doing web design work on a friend’s computer, but thanks to a day job where I was earning less than the cost of employment, I was having a little trouble locating cash.

I purchased a $1,500 computer — definitely not top of the line — on 0% credit, offered to me at the store where I was making the purchase. This provided me with a way to do web development without bugging my friends. As it happened, I also installed on this computer Moneydance, and later Microsoft Money, and managed to work my way into a better financial position after I saw the numbers were actually going down each month.

Now, when I buy my new notebook computer, it will be with a cash-back credit card, but I’ll be able to pay the entire balance off with cash when the payment is due.

The questions remain: Am I truly “beating the system” (I haven’t paid an interest charge or late fee in years) or am I still a victim of the credit card companies’ design despite my apparently intelligent use of credit? Are there any victims of credit cards or do people really have more control than this article claims?

{ 4 comments }