Financial Planning

The new economy: Credit is out, cash is in

CreditCPAs have an unlikely ally on the financial literacy front -- a credit crunch that is forcing lenders to re-evaluate their credit policies and convincing consumers to put away their credit cards.

In "The Death of the Credit Card Economy," Slate columnist Daniel Gross says lenders who, in recent years, have granted credit to anything that moves are now exhibiting remarkable restraint and caution. "We predicted there would be some degree of spillover from the mortgage meltdown," founder Curtis Arnold told Gross. "But the credit line reductions by big credit card companies in the last six months have been fairly unprecedented."

With less credit available, consumers are changing their spending habits and even reacquainting themselves with an antiquated notion -- buying only what they can afford. In the second quarter of 2008, writes Gross, Target reported a drop in the percentage of purchases made with credit and a rise in the percentage of purchases made with debit cards -- the first time in memory that has happened.

"With credit, Saturday night means dinner and a movie," writes Gross. "When you pay cash and have a fixed budget, it's dinner or a movie."

It took a credit crisis to get the message through, but Americans might finally be realizing that credit comes with a price -- and a whole lot of risk. Are you using credit less these days?

Read Gross's article in its entirety, then check out these other financial literacy resources:


Bill Sheridan