Credit

The middle-income group, sometimes called the middle class, is shrinking and it is disappearing in two directions. About 20% have moved up while 80% have moved down. Back in the 1950’s there were restraints on spending, both from an income stand point and from a psychological end. These were the children of depression parents who taught them to limit their spending to needs as opposed to wants. The first step out of this was called lay away. Many people today have no idea what this is but you could go to a store and with a small deposit have them set aside your new toaster, for you to pick up later, when you paid for it. The first credit card was Bank America Card, later to be called VISA and this allowed people to purchase items on credit. Initial credit limits were $300 and this allowed for an immediate purchase. The old depression idea of waiting until you had the cash to buy went out the window. Prior to this most of the credit purchases were home mortgages through banks and auto purchases through the car companies like General Motors Acceptance Corporation. For other items people mostly paid cash. With the new credit card, the thinking changed from how much does it cost to how much per month. Before the credit card a family which had $500 of disposable income could only purchase that much but if they had credit cards it was like getting a raise. Something that cost $1,200 was only $50 per month. This allowed businesses to raise prices because consumers were more interested in the monthly payment instead of the total cost. Businesses lowered the monthly payment by extending the loan period. Cars that once were 24-month loans became 72-month loans. People slowly moved from buying what they need to buying what they want. During this time the moms went to work so the family could buy more stuff. The two-income family led to two cars and more eating out. As people moved to suburbia the pressure to keep up with the Joneses increased and there was no going back. In the 50’s homes were small, about 1,200 sq ft and people kept their clothes longer, took fewer and shorter vacations and rarely ate out. By the 1970’s credit cards were all over and during that time businesses began to move manufacturing jobs to countries where costs were lower. Over the next 30 years the US lost 8 million manufacturing jobs and wages for the middle-income workers stagnated. While workers lost out the big corporations made large profits so some people moved up the wage ladder while others slipped behind. In the early 1950s, the typical American household held a modest amount of debt, often less than 2% of their income. Today that figure is 81%. Today the wage gap is larger than ever and one of the reasons why young people look favorably on socialism.