The Power Of Consumers In The 20th Century

A busy New York market
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

Consumer consumption has been a great influence on the increase in credit in the US. By the 1960s at least 60% of Americans owned their own homes (albeit with a mortgage) and this was twice as many compared to the 1930s. In addition, during the 1960s unemployment was low and the US economy was the envy of the world. In this article we examine:

  • The US market and the modern consumer
  • An increase in materialism and debt
  • The end of post war prosperity
  • The growth of debt and the 2008 financial crisis

The late 1950s and the early 1960s saw an explosion in credit products with charge cards like American Express and Diner’s Club becoming a part of everyday life. With the increase in the availability of credit to the ordinary consumer came Mastercard, Visa and other cards. At this time people were positively encouraged to take advantage of credit and there were few worries about the possibility of families getting into long term debt.

Debt and modern US consumers

At the time credit was seen as a means of equalizing society with all Americans having access to financial products that were once restricted to the upper and middle classes i.e. the privileged few. It is worth noting that to a certain extent this viewpoint has been validated as in the 21st century, 75% of Americans use plastic for their purchases with the average outstanding credit card balance being around $3,000.

In the 50s and 60s people were  encouraged to take out credit

There were, of course, some dissenting voices who were concerned that the long established habit of saving was fast disappearing with some people starting to take on extra mortgages to pay for consumers goods like an expensive automobile or a foreign holiday. However, this dissent has not prevented the unstoppable rise in credit and debt in the wealthiest country in the world.

The 1970’s – The end of post war prosperity

Following the disastrous Vietnam War and the OPEC embargo on oil, people and the government of the US came down to earth with a bump. During the 1970s the US along with other western economies faced a long period of inflation. Ordinary families began to feel the pinch as the cost of the American Dream began to rocket.

During the 1970s the US along with other western economies faced a long period of inflation.

By 1979 the economic problems were at their worst and President Carter went on TV to ask the American people to turn their backs on conspicuous consumption and to cut back on spending. However, the American people who had enjoyed such a long period of achieving their dreams said NO. They were not willing to sacrifice the future dreams for their children and so began to look for other ways to finance the purchase of goods and even a college education.

Inflation and borrowing in the 1970s

Whilst in the 21st century the levels of inflation have been very modest, in the 1970s inflation was very high. This had a twofold effect on how Americans looked at borrowing and debt. High inflation means that the value of your home increases at a fast rate and so if you borrow money, the debt you owe reduces in size compared to the price of your asset (your home). Many Americans saw that borrowing to buy ‘now’ before prices were increased was the best way to get what they wanted and to save money. In fact, getting into debt became a way to manage when inflation was running high.

A woman is shown out shopping with her credit card

With the increase in inflation many people used their home as collateral to borrow money. And, as it looked like there was no stopping the price rises, the characteristic entrepreneurial attitude of many citizens saw them look at other ways of making money.

Banking deregulation, which eventually played such a large part in the financial crisis, meant that investing in the money markets was no longer restricted to big players and many smaller investors saw that they could get large returns that would prevent inflation from eroding away their savings and pension funds.

The growth of debt and the 2008 financial crisis

The 1980s saw an increase in wealth for the top 20% of society. Even though banking deregulation had enabled many ordinary people to accumulate better returns and the US economy was on the way back to prosperity, there began to be an increasing gap between the bulk of citizens and those at the top of the tree. Many saw an opportunity to get to the top through a college degree from a prestigious establishment and people thought that this could be achieved by more borrowing.

There was also the consistent dream of better houses and expensive holidays, larger autos and ever more modern household appliances. All these could be yours if you could borrow money. Rates of interest were ignored, homeowners expected their homes to increase in value and real estate was the de-facto investment opportunity.

Many saw an opportunity to get to the top through a college degree from a prestigious establishment and people thought that this could be achieved by more borrowing.

There were tax breaks for those people who took out a mortgage and by the 1990s Americans were in debt but were not worried as they always had their home to fall back on. Following the bursting of the dotcom bubble in 2000, real estate still held fast as an ever increasing asset and this remained true even after the disaster of September 2011. Owning your own home meant that you could finance a better lifestyle by taking equity out with a second mortgage and at that time no one could have expected the credit crunch that was to come in 2008.

The reality of debt

There are many reasons why the financial crisis occurred and we will look at this in another article. But, it is interesting and important to take a look at whether attitudes to debt have really changed since financial problems emerged with such a shock in 2008.

The 1980s saw an increase in wealth for the top 20% of society in the US

Some sociologists have suggested that being in debt is often a good state as it means that people must put in long hours at work in order to meet their obligations. They have pointed out that this is good for the prosperity of the nation as it builds a sense of discipline in the workplace and overall that it is good for society.

The viewpoint of someone who is trapped in a spiral of debt will be somewhat different and the rise in payday loan companies is a good indicator that ordinary Americans are still struggling after the horrendous events of the credit crunch.Nevertheless, whichever way you view the increase in credit, it is undoubtedly here to stay and unless there are severe restrictions, which looks unlikely, people will no doubt continue to borrow to chase their vision of a better future.

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