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The Future of Consumer Credit in the US

posted by Paige Marta Skiba and Jeremy Tobacman

During these few posts we've been writing about aspects of consumer credit today in the US.  We'd like to close our week by inviting comments about the future of consumer credit.  How much indebtedness should we expect in the long term?  Will plastic be with us forever?  Will the terms of consumer credit improve (lower interest rates, more frequent flyer miles) or worsen (higher late fees, more invasive collections practices)?

We've had a blast blogging this week. Thanks!

Comments

I think things will get worse before getting better. The way the economy is going people will have to start doing it right and start saving instead of spending. I don't know how we can sustain such levels of consumption without financing it. People are already "getting real" on their spending and are having to make choices between "someplace to live" and "something I want". Unfortunately I think it’s all a bubble of which retailers and restaurants will take the brunt of the now expensive credit and skyrocketing inflation in the short term. Consumers will just pull back. We already take less and less vacations opting to stay put and work more.

In the long term, if we get back to basics, we should recover, barring the "energy mess" we are facing. We have to produce more than we consume and get paid more for our production. It seems as if all the money that was made in the past 5-7 years came from betting on a bet, insuring the betting on a bet and not producing enough "things".

Enjoyed your posts and all of the responses it was all great food for thought…….

Cordially,

Patches

Situations feel dire when they are worse than they have ever been but that doesn't mean they are near their operational limits. If we look at the amount of personal indebtedness between the U.K. and U.S. we see that consumers in the U.K. are comfortable operating at almost twice the level of debt. The U.S. still has room to grow.

As consumer debt thinkers, those of us that read this blog are more fully informed than the general public. We also have a sensitivity and awareness to these issues so it makes us more attuned to warning signs and changes. But those learned skills and awarenesses do not translate to the general population.

The average consumer will continue to repeat the same behaviors until they are not possible. Consumers will continue to try to borrow their way out of debt or fund lifestyles they can't afford with credit, as long as it is easy.

The ability to educate people to change their relationship with consumer debt is as flawed as the expectation that more classes on dietary prudence will help to stop obesity. But over indebtedness and obesity are the symptoms of the underlying issues and not the problem in itself.

If anything, I would expect to see consumers more willing to go into more debt when facing uncertain times as long as creditors will extend credit. Why?

As long as people use material goods to medicate themselves to reduce stress, feed entitlements and provide distractions, the consequence will be rising debt.

The U.K. has demonstrated that consumers are willing to absorb much more financial pain before they break. What is interesting here in the U.K. right now is that there has been a radical shift in attitudes in just the past couple of months. What has changed - living.

Energy prices have risen significantly. Since I was last in the U.S. two months ago the cost of petrol at my local garage in the U.K. has risen 14%. Not to mention the small incremental increases of other consumer goods as a result.

Debtors in the U.K. are now contacting us and no longer as for help to resolve their financial problems but saying that they've just had enough and can no longer tolerate the stress of limping along month to month. More people seem to be more mentally prepared to go bankrupt.

I would expect to see similar trends in the U.S., moving forward.

Sorry Just have to add this and I am sort of tooting my own horn. Jim Jubak 4/15/2008 is saying what I said back in March. Cool ehhhh? Here is the quote "We'll pay some of that bill directly, as formal taxes. And we'll pay some of it indirectly -- maybe even so gradually we won't notice -- as what I'd call informal taxes, such as lower living standards and a sinking U.S. dollar. But pay it we will. (Unless we somehow boost our productivity so that we get rich fast enough to pay off our debt out of our "extra" wealth. That's the only alternative I can see that will break the connection between debt and taxes.)" You can find the article here: http://articles.moneycentral.msn.com/Investing/JubaksJournal/USDeepInDebtAndStillDigging.aspx

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