Impact of Credit Cards

Before money came into existence, there was a perfectly establish barter system, which was in practice. You went and bought only the things you needed the most in exchange of any goods you had. There was no greed or theft nor a credit system which allowed you to pay the recipient later. In a barter system, everyone was equal and no concept of rich, poor or middle class

Once money began in circulation, they gave each person a particular status. You were judged, identified and even categorized by the amount of money you  had and earned. Money provided a certain lifestyle for all, which indicated how much you could afford on spending. Money was considered to be wealth and one was classified as one among the following: poor, middle class, upper middle class, rich and the super-rich. Naturally, the rich people and the super-rich controlled nearly 30% of the country’s money

Banks played a passive role in the economy by just securing the customer’s wealth and adding interest on his money. They gave out loans only to big corporates or invested their money in other mutual fund schemes. They were quite apprehensive about personal loans to individual customers, in fear of non-repayment.

However, no longer able to be a passive player in the growing economy they had to rework the system. With approval from reserve banks, they gave an indirect purchasing power to the customer in the form of a plastic card. The card was of two types: One was a credit card, while the other is a debit card.

Debit cards made perfect sense. One could buy things without carrying cash on their hand. But the limit of spending was only up to their bank balance limit excluding the minimum balance amount. Credit cards however were different. They let you purchase for any amount and lets you repay at the end of the month.

With almost no track of spending, you feel the impact of credit cards towards the end of the month. An inflated bill, for things you don’t even remember buying, can put you in a deep shock. You suddenly realize, that it’s more than what you have in your account at present and don’t really know how to repay. Even a delay of payment by a day, than the due date can mean excessive late charges
Credit cards impacted not only the common man, but also the entire global economy as a whole. Credit cards created a mirage of a growing spending economy and showed positive signs in inflation. One fine day, when the spending stopped and it was time for repayment, there was no money left in the system. Everyone defaulted in their payment causing excessive ripple effects. Economy had a meltdown and the global recession of 2009 happened. People lost jobs, companies shut and the global spending came to drastically low levels.

The world still hasn’t learnt its lessons and still relies heavily on the credit card system even now.