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How Did Debt And Credit Become The ‘American Way’?

May 9, 2011

Taking on significant debt has become “normal”"”and even patriotic””to some consumers, according to a new study in the Journal of Consumer Research.

“How did America, a country once so indelibly marked with Puritan principles of self-discipline and thrift, become a nation so awash in personal debt?” ask authors Lisa Peñaloza (Ó°cole des Hautes Ó°tudes Commerciales du Nord””EDHEC) and Michelle Barnhart (Oregon State University).

The researchers interviewed 27 white, middle-class Americans before the 2008 financial crisis and found that even though consumers believe that they should limit their debt, they take on debt because doing so has become normal. “As one participant put it, taking on debt is ‘the American way,’” the authors write.

For many participants, the disconnect between what consumers say they should do and what they actually do begins in young adulthood. “When their parents did talk about credit/debt, it was to counsel them to use credit only in emergencies,” the authors write. “In contrast, these study participants viewed debt as acceptable and necessary for middle class Americans who ‘have to’ buy a house, furnishings, a college education, and a car””items most cannot afford without credit.”

Participants recognized the value of a good credit history and understood that they needed to use credit to build one. “The only one who had avoided credit in an attempt to live within her means found it impossible to be a ‘normal consumer’ without it, recalling that she had been denied a cell phone and had difficulty when traveling because she did not have a credit card,” the authors write.

Although consumers generally tried to use credit responsibly, some participants “gamed” credit by taking out multiple cards, rolling over balances, and amassing large debts. “So long as these consumers consistently paid at least the minimum amount required, financial agents rewarded them with higher credit limits and even mortgages,” the authors write.

“Spurred on by tax rebates, prominent among which is the mortgage tax deduction, ambition to get ahead, and social pressure to build wealth, study participants accumulated debt to demonstrate financial independence and express freedom, and some participants even cast their credit use as a patriotic duty to boost the national economy,” the authors conclude.

Lisa Peñaloza and Michelle Barnhart. “Living U.S. Capitalism: The Normalization of Credit/Debt.” Journal of Consumer Research: December 2011 (published online April 5, 2011).

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