On Credit Slips this week, Professor Bob Lawless of the University of Illinois College of Law shares an interesting article from the New York Times about consumer credit and overspending in India. The article discusses how financial attitudes have changed such that utilizing credit, even for ordinary purchases, have become common. In his post, he highlights his skepticism as to the role that societal attitudes towards debt, as much as the availability of consumer credit, play in a country’s resulting overindebtedness.
My additional take is that even with freely available consumer credit, a cultural willingness to spend or not to spend – or stigma with regard to debt – definitely makes a difference. For example, on my husband’s side of my family, there is an unwillingness to take out a car loan; this is not because of a lack of credit, but rather because it is a bad investment in a quickly depreciating consumer asset. Hence, as his family did, we have saved and paid for vehicles in cash. My family, on the other hand, was willing to borrow to pay for things on credit (and pay back later) – a cultural willingness to spend.
Without credit, debt could obviously not occur, so clearly the availability of consumer credit plays a significant role in resulting indebtedness. But it seems that those whose financial attitudes or habits are set against excessive debt (either from cultural or family history, or financial education or lessons learned), the lure of credit is unlikely to change that. A cultural willingness to spend, on the other hand, combined with accessible credit, opens the door to borrowing.