Walker 1 Andrew Walker Malcolm Campbell English 1102 April 8, 2013 Threats of Consumer Credit Card Spending Think

for a moment about how you paid for the things you have on your person. What sorts of means came to mind? Which form of payment was most common? The most prevailing method for many us is a plastic card. What impact do todays swipe it and forget it technologies have on day-to-day personal finances and monetary transactions? How do todays technologies affect how consumers spend money? Are these technologies creating an environment where we live beyond our means? Does the way we use technology today create complications or does the technology improve how we manage our personal finances? Here I will pose an argument; an argument that questions whether todays financial technologies have shaped todays modern consumers spending habits for the better or the worse. Research/Studies Thomas Durkin, a member of the Board of Governors of the Federal Reserve System Division of Research and Statistics when hewho prepared the article Credit Cards: Use and Consumer Attitudes 1970-2000, notes that, Known at the time as Bank Americard and Master Chargeand issued only by commercial banking organizations, they (bank-type cards) were a new product in the mid 1960s By 1998, bank-type cardswere in the hands of about twothirds of families. In three decades, the general-purpose card with a revolving feature has become the most widely held credit device. (Durkin). A new product in the 1960s, bank card ownership

Walker 2 and use not only grew, flourished to a point that not many had anticipated, and heavily exposed Americas households to a new form of credit. With this in mind, the effects of placing so many in possession of this new financial technology has had a lasting impact on our economy. According to Durkins research, Holders of bank-type credit cards in 2000 believe that too much credit is available, that consumers are confused about some practices, and that credit users have difficulty getting out of debt. Consumers opinions about credit cards also vary depending on their use and experience with cards (Durkin). Within the past decade, in the U.S alone, individuals have seen levels of debt in part due to the stock market crash but also due to their increased use of credit cards. And many of those individuals struggle to climb out of debt, as Durkins study suggested even prior to the pitfall. Mike Brains posted a guest article on a webpage discussing credit card research by Mintel, he states, In such a harsh climate its no surprise that overall use of credit cards has decreased. Card interest rates are at a 10-year high as providers battle to protect margins amidst defaults and write offs and people are more debt-averse than ever before (Brains). In other words, given the current state of our economy and high levels of consumer debt, it appears that consumers are beginning to cut back on credit card usage in an attempt to avoid some of the skyrocketing levels of debt that had become so common. Furthermore, according to Brains, (the same Mintel) surveyhas revealed that more people than ever before are avoiding large balances on their credit cards by clearing debts as soon as possible. Gone are the days of cheap credit and less than perfect financial management, the modern credit holder is responsible and conscious of debt commitments(Brains). It is evident from Brains article that while there was a time when consumers had accumulated large amounts of credit card debt, todays consumers are more debt conscious than before.
Comment [JG1]: Good clarification

Walker 3 In The Credit Card Is The New App Platform, Reid Hoffman states, Over 170 million people in the U.S. have credit cards and the average cardholder has 3.5 of them (Hoffman). Contrary to Brains, Hoffman suggests that even though there are decreases in overall use of credit cards, there are still high levels of consumer credit card activity. Based off results from Durkins research, Consumers use credit cards for two main purposes: as a substitute for cash and checks when making purchases and as a source of revolving credit. Many holders of bank-type credit cards in 2000 believe that credit cards are useful and that consumers are better off with them than without them despite concerns over the inability of consumers to exercise self-discipline and avoid overuse (Durkin). Phylis Mansfield reinforces Durkins report, in the Journal of Management and Marketing Research she states, The number of convenience users appears to be rising, indicating a wider use of credit cards (Mansfield). Indicating that even though individuals are beginning to realize the implication of credit cards there is a convenience that draws general interest to the continue to use credit cards. Two of the main reasons we are seeing an increase in consumer credit card use are convenience and openend credit. Consumers apparently like the convenience associated with card-based, open-end credit lines, but they also express concerns (Durkin). These concerns are supported by the fact that, with the unfolding of Americas economic crisis, the average household credit card debt reached $16,420. A more recent credit card statistic in 2011 reveals that, the average cardholder owns 7.7 cards and uses a credit card 119 times a year charging an average of $10,500 annually. This new statistic can be associated to the statement that while, up to 70% of consumer spending is influenced by Web and mobile research, over 90% of actual transactions are still conducted in the physical world (Mansfield). In other words, while
Comment [JG3]: And this Comment [JG2]: Whos quoting this?

Walker 4 Mansfield supports the convenience of having plastic over cash, the ever-increasing use of plastic creates real consumer concerns. My Claim From modest origins in the 1950s credit cards have become ubiquitous financial products held by households in all economic strata (Durkin). With regard to social concerns, the use of credit cards in society has affected not only traditional consumers, but also vulnerable groups, such as college students, senior citizens. These social and economic concerns have raised the level of awareness that credit cards have both positive and negative consequences for individual consumers and for society as a whole (Mansfield). The use of credit cards has increased over the past fifty years; nowadays college students use credit cards as much as the average adult, and societal concerns have risen as the costs and benefits of using a credit card have reached a blurred line. Credit cards certainly are widely used and accepted by the public. But they have also raised concerns in two areas: (1) whether consumers fully understand the costs and implications of using credit cards and (2) whether credit cards have encouraged widespread over indebtedness, particularly among those least able to pay (Durkin). Manning supports the first concern with, the ongoing generational shift in personal attitudes towards debt from frugality and thrift to self-indulgence and instant gratification (Manning). In Market Analysis of Students Attitudes About Credit Cards, J.C. Arias, adds many college students, applying for and getting a credit card is a big boost to their ego (Arias). As more college students apply for and receive credit cards, more people who are least able to pay off the balance owed and therefore indebtedness spreads amongst young individuals.

Walker 5 The proliferation of credit cards and their ease of access have given consumers increased opportunities for making credit purchases (Mansfield). However, people feel illequipped to create and follow a basic financial plan, especially as they transition between different life stages. younger groups in particular lament the lack of training in personal finance at the high school or college level (Manning). Marketing techniques of credit card companies have found a target market that lacks personal finance skills necessary to balance a checkbook, which allows the credit card company to make an easy profit off interest rates and service fees. In modern commerce, credit cards (along with debit cards) serve as a payment device in lieu of cash or checks for millions of routine purchases as well as for many transactions that would otherwise be inconvenient, or perhaps impossible (Durkin). College students have grown up in the age of credit, becoming independent consumers early in life, and constantly exposed to new products and services available through credit cards. Along with technology and the expansion of the Internet. Credit card debt has been reported as the main reason causing Americans to file for personal bankruptcy (Mansfield); how will Americans be able to resist credit ramifications with the introduction of new app platforms on their way, when it is already increasingly hard to resist using a credit card for routine purchases? Evidence The Credit Card Is The New App Platform, Were at the early stages of a massive wave of innovation in the payment industry. Its like when Apple launched the iOS platform for mobile developers. The platform in this case is the payment network. Developers are now poised to build and launch a wide range of promising new applications to super-charge these cards (Hoffman). the revolving components share has been growing reflecting

Walker 6 consumer preference and technological change; many consumers seem to like the convenience associated withtechnological developments (Durkin). As new financial technology emerges consumers will be enticed with payment plans at their fingertips, just the way they like it; the issue being how many consumers will be able to ride the wave successfully. Today many of us simply swipe our cards to pay for things making it hard to keep track of what we spend from day-to-day. To compensate for this, banks have instituted procedures for automatic deposit and bill payment systems. In Has Technology Killed Our Ability To Manage Our Money, Douglas Jacobs talks about how, Ron Popeils set it and forget it methodology is in full force when it comes to managing your personal finances . We are saving countless hours, headaches and calculator tape and losing only the hands-on approach of keeping track of our money (Jacobs). Just one of the many factors influencing how consumers spend money and why consumers are faced with ever increasing debt loads. In the article, Top Challenges Facing Financial Services in 2013, Lee Kidder states that, Technology is and has been changing the currency of exchange in financial services away from a pure focus on money, which is actually now just a blip on a computer. The same financial industries, responsible for providing this technology, not only face many challenges such as recognizing that, The emerging technologies of importance are...those that will enable the flexibility, adaptability, integration, standardization and efficiency (Kidder), such as mobile banking and social media advertising, but also must be aware of the social implications arising from the new swipe it and forget it consumer they are creating. For example, the use of technology by consumers seems to create insurmountable complications for individuals, especially younger generation users of credit cards who have not developed the skillsets to be successful at budgeting for a week or even a month at time. One

Walker 7 reason individuals are unsuccessful is because they often rely on the use credit cards when there is not enough money available in their account. Because of their heavy reliance on credit cards, consumers end up not being able to pay off the amounts they owe and create an imbalance in their personal finances known as consumer debt, a state in which consumers owe more money than they earn. While, credit cards have become a fact of life for consumers today, new technologies such as using smart phones to pay for items in vending machines, parking spaces, your daily latte, and airline tickets at airport kiosks, will likely influence spending patterns and repayment behavior in the future (Mansfield). An emerging financial technology of interest, one likely to get consumers excited, is the introduction of contact-less payment solutions. In a world where most people are time-poor, a service where an account holder can either swipe her card or phone to pay is surely a big selling point (Brains). Evidence that credit cards are shaping the way consumers spend money is by these new financial technologies, pushed for by credit card companies because they make it easier and more convenient for consumers to spend routinely. Significance Credit cards have been changing the way consumers spend with advances in financial technology and as a result, Over the past two decades, use of credit cards has become an area of economic and social concern (Mansfield). Because The expanded availability of card-based credit, especially to lower-income consumers, concerns that issuers have taken on more credit risk and that instances of financial distress may increase sharply at some point (Durkin) causing a stream of panicked consumers who neither know what to do nor can trust the systems they have grown up using for years.

Walker 8 Though clearly, the messages of control, ego gratification and the rationalization of use for emergencies is working very well (Arias). And, Use of consumer credit to fuel spending beyond a persons means to pay in cash is often justified as a well -earned entitlement for hard work and a stressful lifestyle (Manning). Leading an individual into believing that working hard or living a stressful life is okay because they can afford the purchase of expensive luxurious items. Credit cards have been around for decades and yet still, Few have developed, let alone adhere to, a personal budget (Durkin). Remarkably, Long-term financial planning, with the exception of buying a house, is largely absent among Baby Boomers and their children. Although financial planning information is widely available, both younger and more mature groups lack adequate skill sets for making basic cost-benefit financial decisions or estimating the true cost of major purchases bought with credit (Manning). The time for understanding how to plan for financial goals and to stick to a budget has never been more important than today. In Hoffmans, The Credit Card Is The New App Platform, he states, its critical that these programs are introduced in a way that protects consumer privacy and retains consumer trust (Hoffman). Without the protection of the consumers privacy and trust, interest in consumer knowledge over spending will be lost, if not discouraged, making it even more difficult to begin to educate consumers on the many ways to adhere to a personal budget and eventually climb out of debt. According to Mannings, LIVING WITH DEBT: A Life Stage Analysis of Changing Attitudes and Behaviors, Many people attribute their willingness to go into debt or to take on additional levels of debt directly to a dramatic increase in spending on children and grandchildren. increased spending on children during their earliest years is compromising

Walker 9 parents ability to save for the rising cost of their childrens college education in later years and actually contributing to higher debt levels among their children as they begin adulthood (Manning). It is important Mansfield that, Research in consumer behavior should keep in step with these changes as they will provide an abundance of research opportunities and have numerous public policy implications (Mansfield). Most individuals have accepted the fact that credit cards are a fact of life and without credit cards much of the purchases that they have made would not have been possible. The idea of buying on credit has been a successful marketing point that in the beginning had thought to have failed within the first decade when introduced to consumers. Now that credit cards have become so widespread, the time for learning how to strategically handle buying with credit has come, perhaps too late for many but its never too late to start. There are no longer a handful of resources to assist individuals on their endeavor to become financially independent once more, except these resources are not talked about or advertised as heavily as are credit card ads.

Walker 10 Works Cited Arias, J.C., and Robert Miller. MARKET ANALYSIS OF STUDENTS ATTITUDES ABOUT CREDIT CARDS. N.p. n.d. Web. 30 Mar. 2013. (S5) Brains, Mike. Credit Card Providers Innovate As Consumer Attitudes Change. N. p. 2011. Web. 30 Mar, 2013. (S6) Durkin, Thomas. Credit Cards: Use and Consumer Attitudes, 1970-2000. Federal Reserve. 2000.Web. 30 Mar, 2013 (S4) Foreman, Gary. Why Budgets Fail. The Dollar Stretcher.com Money. n.d. Web. 29 Mar. 2013. Hoffman, Reid, Ali Rosenthal and James Slavet. The Credit Card Is The New App Platform. Forbes. 2012. Web. 30 Mar, 2013. (S2) Jacobs, Douglas. Has Technology Killed Our Ability To Manage Our Money?. Money Health Central. 2011. Web. 29 Mar. 2013. Kidder, Lee. Top Challenges Facing Financial Services in 2013. Bank Systems & Technology. 2012. 29 Mar. 2013. Manning, Robert. LIVING WITH DEBT: A Life Stage Analysis of Changing Attitudes and Behaviors. Lending Tree. 2005. Web. 30 Mar, 2013. (S3) Mansfield, Phylis, Mary Pinto and Cliff Robb. Consumers and credit cards: A review of the empirical literature. Journal of Management and Marketing Research. 2012. Web. 31 Mar, 2013. (S1)

Comment [JG4]: Be sure to indent the second line of citations. MLA format.

Jacob Glazebrook Overall this paper is very good; there arent many things wrong. However while reading it I do notice a good amount of quotes, which can be sometimes overwhelming.