The 20th Century Boom In Consumer Goods And Lending

A pair of women are outside a clothes shop carrying shopping bags
A Short History of Lending In The US
Part 1 American Lending In The 20th Century
Part 2 The 20th Century Boom In Consumer Goods And Lending
Part 3 The Power Of Consumers In The 20th Century
Part 4 Consumer Credit And The American Dream Today

The increasing availability of consumer goods was another reason for the increase in credit during the twentieth century. Unlike the UK, which was far behind technologically, families in the US had access to the latest washing machines, radios, modern and new furniture and many of these items were bought on credit. In this article we look at:

  • The impact of consumerism in the 1920s
  • New finance and loan companies
  • The New Deal and mortgages
  • The G I Bill Of Rights

It became increasingly common to buy on installments and it was during this period that a new financial product became available. i.e. the personal loan. Prior to the early part of the twentieth century banks would only lend money to the wealthy middle classes. Most ordinary people who needed to borrow had to rely upon loan sharks, the pawnbroker or they borrowed from their family.

New finance and loan companies

In the 1920s there began to spring up new loan companies and many people who were looking for their own American Dream began to take out loans to buy their own home. Of course, the target demographic for these loans were those people who were considered to be ‘of good character and self respecting’.

Before the 20th century, deposits for  mortgages were 50% of property value

The loans were heavily marketed with some advertisements encouraging new customers to use a loan to get out of debt! They also promoted loans for businesses, holidays, education and for those moving home.

Exploring the American Dream

The phrase American Dream was actually first used during the time of the Great Depression which is quite ironic. James Truslow Adams spoke about a life that could be richer and better and even though he was not specifically talking about more material wealth and a better automobile, the idea was soon closely linked to these ambitions. A better life to most people meant one that included job security, enough money to provide for their family and some material comforts.

The New Deal and the rise of mortgages

Before the 20th century owning your own home was not common and even the upper and middle classes were used to renting. Getting a mortgage was difficult and you needed at least half of the price up front and to pay back the mortgage within a short space of time. Most families could not afford to do this and those that did were older so owning your own home as you started out a family life was not an available option.

In 1934, as part of the New Deal initiated by President F D Roosevelt, the National Housing Act came into force. This was designed to enact a program of building houses for anyone who wanted to own their own home. And, along with the new home was a need for furniture, household appliances and all the trappings that are now so familiar in the 21st century. The government promoted mortgages and these new financial products were available over a much longer period of time making home ownership much more doable and affordable.

A young family are sitting on their garden lawn in front of their new home bought with a mortgage

There was a push for more infrastructure to support the new housing estates and this helped to reduce unemployment. With more people in work, home ownership really took off in the States and by 1940 it became an established right of passage for younger adults to buy their own home with most taking on a mortgage to pay for it.

The end of WWII and the American Dream

When World War 2 came to an end the President was at pains to ensure that GIs received the best treatment possible. He was also looking into a second Bill of Rights that would allow all Americans to have a decent home, a job that paid enough to support a family and a right to higher education.

In 1944 the modern version of the American Dream was put before the people and this vision included a social contract. Basically this meant that if you worked hard and did not disrupt society, you would, in return, receive security and not have to worry about losing your home.

The G I Bill Of Rights

This bill gave the returning GIs a right to free college education and if they had children they would get support for living expenses. There were also loans to buy a home and these were backed by the government with no need for a deposit. This made the prospect of buying a home cheaper than renting and thus the great expansion of home ownership got underway.

The bill of rights not only gave veterans a leg up after their service in the war but also raised the expectations of all Americans. A college education soon became looked on as a right and not as an entitlement only for the upper classes.

The G I Bill Of Rights gave GIs a right to free college education and if they had children they would get support for living expenses.

The huge development in house building meant that now owning your own home appeared to be no different to buying the latest refrigerator or washing machine. Mortgages were now viewed as the acceptable face of credit but they were not available to everyone. Many people of color and other ethnic minorities were prevented from getting on the housing ladder as segregation and racist attitudes meant that they were locked out from the new suburban developments that were springing up everywhere. This gradually changed when these groups of people set about using their spending power.

A Short History of Lending In The US
Part 1 American Lending In The 20th Century
Part 2 The 20th Century Boom In Consumer Goods And Lending
Part 3 The Power Of Consumers In The 20th Century
Part 4 Consumer Credit And The American Dream Today

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com