THE ISSUE:
Since the advent of Covid, American households have relied more and more on credit cards and today are indebted to the credit card companies and issuers at record levels.
The “3 Minute Budget”
50% Needs
30% Wants
20% Savings
This fact raises a very interesting question. More specifically, about the interaction between human spending self-control and human credit card borrowing behavior.
Empirical data reveals a fascinating connection between the ability to display spending self-control and the inability to do so, leading to increased indebtedness to the credit card issuers.
A comprehensive analysis has demonstrated a lack of spending self-control raises household credit card debt. Furthermore, a lack of spending self-control even increases the probability of taking out unsecured loans that require a personal guarantee and certainly raises spenders credit card use.
Evidence suggests a consumers first purchase impulse leads them to buy because of credit cards. Consumers can be tempted to become indebted to credit cards, even when they cannot make ends meet.
However, this first impulse can be managed by simply asking whether one can afford the item and whether it’s a need or a want.
Thus, the evidence suggests that the effects of self-control on spending decisions might very well be shaped by one’s ability to ask difficult questions such as “Can I afford this?” “Do I really need it?” and whether the item is affordable.
Spending self-control is defined as a consumer’s ability or capacity to control their spending and to resist a temptation purchase.
These thoughts further prove that an individuals’ capacity for self-control will vary from individual to individual and in turn affect their future financial well-being differently, since those with spending self-control problems are less willing to save for the future and more willing to spend in the present.
Accordingly, it is generally accepted that a lack of spending self-control leads individuals to relent to their immediate or dominant impulses, namely, the inability to resist temptations or cope with their spending emotions and to make purchasers on credit cards they cannot afford.
SOLUTIONS:
- Switch from a credit card to a debit card. Since what you spend on a debit card is withdrawn from your account immediately, making a consumer far more aware of their spending.
- Contact your credit card issuer pre-default and ask for a payment plan.
- Pay down your credit card.
- Create a household budget.
- Be sure to differentiate between a “want” and a “need.”
- Educate yourself in fiscal responsibility with books and other materials that can be found at any library or online.
- Call a household meeting to create a viable plan for paying off credit card debt.
