The use of the credit card payment system has continued to be adopted across the world, and its use has been rated as overwhelming. Substantial literature review on credits cards use reveal that the payment system is gaining ground out of its convenience, advance financial services, credit borrowing and enhanced liquidity, with most of the former liquidation hurdles navigated (Stearns, 2011, p. 45). America was the first country to use the credit cards in the 19th century. Since then, the country has continued the use of the credit card intensively. In the onset, a credit card was only issued to the professional’s realm or to those who were ranked as prosperous entrepreneurs by the card-issue companies.
Across time, the ownership of a credit card has been perceived as a prestigious element, and many people have continued to subscribe to these services. As income increases, the inclination to hold more credit cards become prevailing, where individuals hold more than one card depending on the number of services. According to a recent study by a United Kingdom research firm Euro Monitor, the average American consumer holds about 3.2 credit cards, rising from 16 percent in 1970 to about 73 percent of the entire population in 2005 (Stearns, 2011, p. 48).
This report will focus on how the use of a credit card system has affected consumer behavior across the world, affecting the buying choices, which has generated far-reaching financial implications (Mann, 2006). Individuals have now substituted other means of payment such as cash with the credit card system, in making frequent small purchases and paying for the utilities, such as house rent, fuel and gas charges, postage charges, electricity, and phone call billings (Stearns, 2011, p. 49). Consequently, this use has significantly increased the household and personal spending as well as loan balances.
As the credit card use and ownership continues to expand across the globe, the payment system has become the major financing platform in consumer purchases and financial transmissions. The card system has two core functions, the making of payments and as a source of credit. Working employees and individuals with steady financial incomes can readily acquire credit facilities from the assigned financial organization, and pay the debt at a later date (Weiss, 2000, p. 72).
As the demand for the credit card facilities intensifies, the credit card companies has continued to penetrate other emerging markets, increasing the number of consumers owning the card, especially in the developing countries. These initiatives have continued to expand the global economy through benefit cultivation of the credit card opportunities. For instance, in the past few years, the American credit card use has been on a rapid upward trend, with more diverse card brands making their way into the market (Weiss, 2000, p. 72).
This report shall focus on how the credit card system has affected the spending patterns of the Americans from 1970 to 1995, in terms of how income affects credit card borrowing. The study will utilize both primary survey data from the households, and secondary data from the Survey of Consumer Finances. Past studies reveal that apart from using the credit card in paying for bills and utilities, businessmen are using the system to finance their business entities. Moreover, across poor households, families are using the limit borrowing, especially during the hard-economic times (Radu, 2003, p. 108). As a result, as more people seek to borrow more money, the need to acquire more credit cards or higher borrowing limits than their financial ability increases.
As a customer utilizes the credit card to acquire loan facilities, the tendency to engage into compulsive purchases heightens. Here in the United States, most individuals the card to make purchases, which carry rewards once, the purchases are made in full. The more the customer continues to make purchases from the cards, the saving abilities decline. Cultures that do not rely on the credit cards for payments, such as Germany and France have higher saving rates than cultures that have intensive use of the system (Radu, 2003, p. 112-114).
According to the Organization for Economic Cooperation and Development, the Americans save less as compared to European countries who utilize the debit card as compared to the credit card. In America, the average percentage of the disposable income that is saved is rated at 4.3 percent, while in Germany clients manage to save about 10 percent of their disposable income.
As the spending rate and borrowing levels increases, the client is subjected to the dangers of living beyond their means and subsequently enters into bankruptcies and economic failures. Therefore, assessing the presence of a credit card and its impact on borrowing will explain how the American population implements its financial management decision (Radu, 2003, p. 116).
The study will be guided by the following research questions:
What is the credit card borrowing rate in the top five economics?
What are the negative effects of credit card debt?
How does credit card debt vary with income, gender, age and education?
Can credit card debt be linked to severe negative economic implications such as accumulation of debt and bankruptcy?
Mann, Ronald J. "Bankruptcy Reform and the'Sweat Box'of Credit Card Debt." University of Illinois Law Review (2006).
Radu, Cristian. Implementing electronic card payment systems. Artech House, 2003. Print.
Stearns, Bátiz-Lazo "Electronic value exchange: origins of the Visa electronic payments system." Business History 54.5 (2012): 821-823.
Weiss, Ann E. Easy Credit. Twenty-First Century Books, 2000.