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It’s no secret that the prevalence of consumer credit has changed how American’s consume and purchase goods. The typical American now has $38,000 of consumer debt excluding their mortgage. To better understand why the current state of American consumer credit, let’s take a trip down memory lane to see how we got here.
A brief history of consumer credit
1910 — 1930
What’s crazy to me is the realization that this mentality of ‘buy-now-pay-later’ was non-existent only 100 years ago. Buying things on credit was not common before 1917. Why? It was illegal for lenders to charge interest rates high enough to make a profit. Consumer credit didn’t exist! By 1920, with the end of World War 1, demand for consumer products skyrocketed. US Lawmakers wanted to crack down on loan sharks of the prior decade so they made it easier for ‘respectable’ banks to issue consumer credit. What happens when you mix relaxed credit laws and the legalization of personal loans with consumer demand for stuff? The birth of the American credit industry.
1930 — 1950
The major life event for most Americans in the 30s was the Great Depression. It was raging. To keep the financial industry afloat, the US Government relaxed lending laws to make it even easier for consumers to obtain personal loans. By the end of 1939 America was in World War 2 which lasted until around 1945. As our soldiers returned home, the improved and the…
