By Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
George Mitchell, as a member of the Board of Governors of the Federal Reserve in 1966, began urging bankers to consider how "the computer can drastically change money and its use."
In the early 1970s a nationwide electronic funds transfer system was envisioned. The system would use individualized electronic identification cards and digitized bank accounts with merchants connected to them by telecommunication links.
But it wasn't until the 1990s that credit and debit card use really caught fire.
Is going cashless a good thing? Not for most people, we tend to spend more when we buy things with a credit or debit card instead of cash:
"Drazen Prelec and Duncan Simester reported studies on this topic in a 2001 issue of Marketing Letters. In one study, they told that randomly selected participants in the study would be offered the opportunity to purchase tickets to an actual professional basketball game that had just sold out. These tickets were highly desirable. Participants were told either that they would have to pay in cash or that they would have to pay by credit card. They were asked how much they would be willing to pay for these tickets. Those who were told they would have to pay by credit card were willing to pay over twice as much on average as those who were told that they would have to pay by cash." Art Markman, Ph.D., psychologytoday.com
Paying with cash, actually pulling the money from a wallet or purse is a vivid enough action to elicit a negative, and in some consumers a mildly painful, psychological reaction that's absent when either a credit or debit card transaction takes place.
"The impulse dances inside the debt." Jareb Teague
In addition there's often a sensory glee caused by impulse buying that causes otherwise rational people to buy things they might not buy if they had to pay cash.
"When cash is out of the wallet you physically see it go, whereas with credit cards there's more of a delay between purchase and payment, so cash buyers tend to stick to the essentials." Richard Bialek, a former credit-card firm executive
There are an estimated 46.7% of US households carrying credit card balances, the average household credit card debt was $14,517 for the first quarter of 2012.
That's down $2,000 from the same period in 2010 ? a lot of recent headlines are talking up the "fact" Americans are finally paying down their credit card debt - are Americans paying down their debt?
No, charge-offs (the percentage of dollars owed that issuers have written off as uncollectable) account for a significant portion of credit card debt reduction. The charge-off rate rose to 10.7% in the second quarter of 2010, an increase of over 300% from the 3.11% in the first quarter of 2006.
Moody's Investors Service said the charge-off rate for U.S. credit cards (those 90 days or more behind on payments that are stricken from lenders' record books) rose in April to 5.21% from 4.92% in March.
The payment rate - which shows the number of credit card users who have the ability to pay off their balance - slipped to 21.49 percent in April from 22.11 percent in March.
The three US credit bureaus maintain over 220 million consumer files - one in five of these consumers has bad credit.
Banks are again starting to ease their lending standards, this makes it easier for consumers to qualify for credit cards and according to Credit Card Select credit use is on the rise. The Federal Reserve reported 17.5 percent of banks said that a moderately larger number of consumers applied for new cards in the first quarter of 2012. Equifax just released consumer credit data indicating that the rate of newly issued bank cards increased by nearly 37 percent in February 2012 over the same time last year.
TransUnion says the average debt per cardholder equaled $4,962 at the end of Q1 2012.
26 percent of U.S. adults now report that they are spending more than they did one year ago.
The national average default rate as January 2012 stood at 28.6 percent, up from 27.9 percent two years earlier. The median rate also jumped, from 28.9 percent to 29.4 percent (Source: CreditCards.com survey of 100 leading credit cards, January 2012)
"Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The