The free availability of credit is similar to the freedom with sex, driving, firearm, gambling, leverage in futures trading (1997), drugs, alcohol and junk food. The availability is alluring, seductive and dangerous.
A young person exposed to these without adequate guidance (or a grown-up at any age) would inevitably shoot herself in the foot. That’s why I want to be with my son when he is studying in the U.S. Some Chinse families send their kids to the U.S. at age 16 !
In the U.S. every adult is assume to be a responsible person, until proven otherwise. Even though a large percentage of adults are not that responsible and will eventually shoot themselves in the foot, the system seems to exploit it rather than adopting a pre-emptive, more selective provision of access. It could be perceived as racial profiling.
You don’t need to demonstrate responsibility before you are given /access/. But this freedom is a /hazard/ (I didn’t say “risk”). Way too many people abuse that freedom either to damage their health, family (harmony), career, or harm other people. The latter is a bigger hazard to the overall “system”.
This blogpost is about responsible use of personal credit. https://www.investopedia.com/articles/pf/09/financial-responsibility.asp has a good summary — “To be financially responsible, you need to live within your means. And to live within your means, you must spend less than you make.” (There are many similar web pages, but this web page is not associated with any commercial organization, and hopefully more stable.)
Other countries are similar, but personal credit is more integrated into the U.S. system than other countries’ systems.
My reputation among BGC and Cambodia investors ….
— some stats on personal debt, based on https://www.ramseysolutions.com/debt/average-american-debt
Student loan is an investment in yourself. I feel mortgage is a reasonable use of personal credit, partly because the asset tends to appreciate, at least matching CPI. All other forms of credits tend to be “spending more than you make”, esp. auto loans.
- ccard .. 45% of American households carry a cCard balance (meaning they don’t pay their credit cards down to zero each month, so they have credit card debt).6,7,8 Over 55 million households have this kind of debt.9,10 Their total credit card debt is $787b. $787b/55 million = $14k/household. Those 55 million households who have credit card balances pay 17% APR.
- The Federal Reserve shares that 48% of American credit card users pay their bill in full every month.15 The other 52% are carrying debt and adding to that $787 billion statistic.
- student loan .. As of 2021, the average student loan borrower carries $39k debt (from student loan)
- car loan .. 37% of American households have auto loan. Among this 37%, the average outstanding is $31k. Among all car loans, the average monthly installment is around $500 28.
- mtg .. Americans with a mortgage pay a median monthly payment of $1,595.34 I guess each data point in the sample is a mortgage, not a household. Many households carry multiple mortgages.
- mortgage total outstanding is $10.44 trillion, spread over 51.57 mortgages, owed by 51.5 million households. 10.44T / 51.57M = $202k
- HELOC (home equity line of credit) total outstanding debt is $349b, owed by 4.74 million HELOC households. 349b / 4.74M = $74k 29,30