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HOW Credit Cards IMPACT U.S. HOUSEHOLDS and the ECONOMY

It is a common notion that credit cards are taboo and should be shunned if families want to keep their heads afloat financially. According to the Gallup poll, “fewer than one-third of Americans follow a detailed written budget every month.” Families that budget do not follow their monthly financial goals religiously, which can be detrimental to household incomes and increase debt.

Additionally, families that budget, more than likely believe credit cards should not be a part of the financial process; instead, they believe saving or applying for financial products such as certificates of deposit or other investments should be the correct financial restitution rather than using credit.

How Do U.S. Households Benefit from Credit Cards? Or Do They?

Incorporating credit cards into a monthly budget  can provide accountability of purchases and keep records of all spending. Yes, debit cards can provide the same services in tracking expenses, but credit cards  provide specific incentives such as cash back options, reward programs, and concierge services. Furthermore, credit card programs provide discounts with specific stores, frequent flyer miles, and even give money to charities, which can be very beneficial for those who are on a tight budget. Families can maximize incentives  by using credit cards to pay large monthly bills like mortgages, car payments, and household utilities.

I spoke with a representative from American Express and she discussed with me how her family uses AMEX cards for business and personal bills to obtain rewards. She mentioned every Friday, groceries and gas (for all of the family’s vehicles) as well as mortgages and utilities are paid on the card. The family also has a separate AMEX card to buy equipment needed for their pool modification business. I asked her, “What are the perks?”

She mentioned that she has two grown kids in college and using their cards pays for all flights for them to come home and visit as well as a nice cash back check at the end of the year that assists in paying the balance. She said she has not paid for a plane ticket in seven years. I think that is a definite perk!

Do Credit Cards Boost Societies?

Senior Economist from the Federal Reserve Bank of Kansas City, Fumiko Hayashi, stated “U.S. rewards are paid for primarily by the fees charged to merchants, and merchants may pass on these same fees to consumers as higher retail prices.” In addition, this particular method for reward programs can be misinterpreted with consumer prices and as a result cardholders believe they are saving money when they are really not. This results in hesitancy of using credit cards, which is not  a “good look” for credit card companies. If cardholders are not using their cards, financial institutions are not making money. In order for there to be a balance among societies, credit card companies need to give incentives in order for cardholders to use their cards to boost communities.

Businesses profit from reward card programs because consumers are more apt to make large purchases in order to meet criteria for rewards. Hayashi indicated, “Merchants benefit as well because reward card users make higher-value transactions than other consumers.” In return, the program works in favor of credit cardholders because the more they purchase, the greater the value of rewards.

Professors John Geanakoplos of Yale University and Pradeep K. Dubey of SUNY–Stony Brook believed credit cards damage the economy and cause national inflation. They also disputed credit cards “increase the amount of dollars that each household can spend at one time, thereby following the system with both real money (cash) and promised money (debts).” People who do not use credit cards are still affected because the costs in merchandise increases to cover unpaid or late debts, again causing inflation. Quite simple: credit cards boost or either deflates an economy based on consumers and/or users actions in sales.

How Credit Affects U.S. Economy

With a crippled economy, it is perceptible that families face unemployment ambiguity causing instability with their finances. Such issues can pose a problem in paying bills resulting in late payments or not even paying at all just to sustain basic necessities. Credit cards are not a necessity and are more than likely the bills that do not get paid. It is quite simple individuals who do not pay their credit card bills pose a problem for the companies trying to reclaim their money. According to one of the largest credit card brands in the nation, Discover, “when people do not pay their credit card payments their credit card issuers has fewer funds on hand to extend loans to others.”

If people refuse to pay their monthly payments or do not pay at all, credit card companies may lose their money indefinitely, making it difficult for others to apply for credit card accounts and/or loans. When an economy is already suffering, negative credit card factors such as this only make matters worse and companies cannot survive unless they are able to provide services to potential and reliable customers. Lack of payment causes financial institutions to reduce the amount of accounts approved as well as potentially raising interest rates to compensate for the loss. Hikes in interest rates will cause users to find alternative in payment or leave their accounts idle. It is a never-ending cycle.

How  Households  Can  Budget  Effectively  with Credit Cards While Helping the Economy

Laura Shin from LearnVest shared a very simple, yet effective plan called “The 50/20/30 Rule” that includes: essential expenses, financial priorities, and lifestyle choices. Under essential expenses (i.e. groceries, housing, and utilities), the maximum amount of money should not surpass 50 percent. Twenty percent of one’s income should be dedicated to financial priorities such as retirement plans, debt payments, loans, credit cards, and savings strategies. Lastly, 30 percent of an individual’s pay should be allocated for personal use. According to Shin, personal expenses are considered “discretionary income paying for entertainment, childcare, gym fees, hobbies, pets, bars, shopping, and other services.” In order for families to utilize credit cards while helping the economy is quite simple: make sure you have ample income to afford monthly payments (budgeting) or be able to pay in full or do not use one at all. Accounts should be for those who are financially responsible to follow the rules no matter the circumstances. There are specific avenues credit card users can utilize such as work with debtors on payments if times are difficult. There are even programs that assist users in paying their bills for a certain amount of time if a person becomes ill, unemployed, or can no longer work.

If people do not take the time to educate themselves on services available as responsible card users, this will continue to be a epidemic that not only affects financial institutions, but the economy as lending and sales will decline, affecting those who are conscientious of their spending and budgeting. Besides, it will affect those who are responsible cards users as well as those who do not even use credit. ■

By Monique M. Maldonado

Monique M. Maldonado is CEO of MD Educational Consulting Firm LLC in North Bethesda, MD. She is also a U.S. Air Force active duty service member at the Pentagon in Washington D.C. and is an adjunct professor. She is the Lead Professor for the School of Graduate and Degree Completion Programs in the Department of Criminal Justice at Tiffin University. A doctoral candidate in the Public Policy and Administration field at Walden University, she is an ASPA and PAA member. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .