Americans love credit cards. We have nearly 609 million credit cards – two for every man, woman and child in the United States – and owe a total of nearly $790 billion in credit card debt, with an average credit card debt per household of over $14,000, according to CreditCards.com.
Credit cards are at the root of most national discussions about debt and financial security. Whether you carry a balance from month to month or always pay your credit card in full, using it as a cash management tool, most Americans would like to reduce their reliance on credit cards.
So why do we keep buying on credit? It feels good.
[Free Resource: Check your free credit report and score]Newly published research is shedding light on the psychology of debt, according to a recent article in Slate. Debt has long been associated with feelings of shame, stigma and irresponsibility. The Bible says that “the borrower is a slave to the lender,” and many societies, including the early United States, have used “debtor’s prisons” to punish people for failure to repay their loans.
However, despite these long cultural traditions, new psychological research from the Ohio State University and Pacific Lutheran University has shown that debt actually can make people feel better about themselves.
According to the research study, young people tend to get a self-esteem boost and feel an increased sense of “mastery” and control from using credit cards and taking on loans. This effect is especially strong in people from lower-income families, perhaps because debt allows them to attain things and experiences that they could never afford before. (Young adults from wealthier families do not demonstrate the same kind of self-esteem boost from debt.)
The reason: credit cards “anesthetize” the experience of buying things. They make it seem like you’re not “really” paying for things – unlike handing over cash, where you can see actual money leaving your wallet. Other forms of debt, like car loans, home loans and student loans, often help self-esteem because they feel like investments in the future.
If you borrow money to go to college, you are making an investment in your future earning power. Buying a home gives you a permanent address, a place to raise a family, and a way to put down roots in your community. Buying a car, even if it’s more car than you thought you could afford, is fun and exciting and gives you a reliable way to get to work.
So is debt the secret to happiness? Unfortunately, no. The psychological boost of debt wears off after age 28. As people get older, they start to relate differently to debt, seeing it as more of a burden and less of an opportunity. The longer you live with debt, the more it costs you, and big interest payments crowd out the other things you’d like to do with your money and your life.
This is the seductive danger of debt: it does provide a short-term boost in your self-image, but the long-term costs can be severe.
What are the lessons here?
- Beware of the siren song of easy credit. Even if buying new clothes, a new car, or living a lavish lifestyle makes you feel good today, paying off bills for years into the future will lower your self-esteem (and limit your career and life choices).
- Learn to feel good about paying cash. If you’re aware of the psychological benefits of debt, you’ll be more likely to resist the urge to pull out the credit card. Train yourself to think differently. Saving up for a big purchase, and then paying cash or writing a check, is a powerful feeling. When you can be your own “banker” and pay yourself back for big purchases, that is the ultimate form of mastery over your finances.
To learn how to improve your relationship with money and other constructive ways to boost your financial self-esteem besides going into debt, check out Quizzle.com, where you can improve your credit, get out of debt faster and make better-informed financial choices for a more prosperous financial future.