Blog

Are Cardholders the Real Problem?

Tuesday, May 19,2009 08:43 PM

A recent article in Time Magazine makes the case for cardholders being the real boogie-man in the whole credit debacle. Here's the evidence: Exhibit A: "Every penny of Americans' nearly $1 trillion in revolving debt started with someone — some individual person — whipping out a piece of plastic and making a decision to use it." Exhibit B: "Even when presented with full and fair information, (people) often make decisions that are not in their own economic best interest." "Certain economists... see a systematic psychological breakdown — as a species we're just really bad at understanding costs that come later on. Instead, we assign a disproportionate amount of importance to what's immediate and tangible." Exhibit C: "Once we've got our card in hand, our behavior becomes riddled with irrationalities." A recent study found that "people were willing to pay twice as much for basketball tickets when they were using a credit card as opposed to paying cash. Credit-card spending just doesn't feel like real money." These things are all true! People are short sighted and pretty darn silly when it comes to credit. Would more information help? Not likely, since the information that makes our credit card bills so chubby now goes unread by just about everyone. But a new brand of information for consumers might just make a difference: "Once a year credit card companies would be required to break out all the fees, interest and other charges customers paid over the past 12 months. That information would come on a person's statement as well as electronically for easier comparison shopping. 'By knowing their precise usage and fee payments, customers would get a better sense of what they are paying for,' write (economists) Thaler and Sunstein. Ostensibly, people would then spend more reasonably. When a new sofa goes from costing $500 to $700 — and the pricing is transparent enough for people to realize that — fewer buy it. What do you think? Would that help save us from ourselves? Read the whole article here: http://www.time.com/time/business/article/0,8599,1897362,00.html