In this edition of our “Ask the Experts” series, we check-in with authorities in the fields of business and consumer psychology in order to gain a better understanding of avoidable post-recession overleveraging.
Isn’t the definition of insanity doing the same thing over and over again while expecting different results each time? Are we as consumers therefore crazy? That’s obviously blowing things a bit out of proportion, but you have to wonder what motivates people to resume racking up billions in dollars in credit card debt on an annual basis shortly after extreme overleveraging helped cause one of the worst recessions in history.
Unfortunately, this isn’t some sort of abstract hypothetical. It’s reality. After sensibly battening down the financial hatches in 2009 and – to a lesser extent – 2010, U.S. consumers have apparently decided it’s time to start throwing plastic around again. From the beginning of 2011 to the end of 2012, we racked up roughly $80 billion in new credit card debt, bringing our grand total amounts owed to an astounding $833.8 billion. Oh yeah, and that includes nearly a quarter of a trillion dollars in debt that was so far past due that the banks had to write it off their books (consumers still owe it, though).
Card Hub projections now indicate that an increase in debt levels of only 15-20% could trigger widespread defaults and place potentially unsustainable pressure on the economy. Yet, in the face of these realities, people continue to spend.
The question is why? Do we have a bona fide obsession with debt? Have the lines between luxury and necessity really become that skewed? Or are we simply choosing not to connect the dots between pre-recession spending levels and an economy propped up by a massive bubble, the reach of which extended far beyond what one would consider to be industries related to housing and real estate?
These questions are not only interesting to ponder, they’re also essential to answer if we are to prevent history from repeating itself. That’s why we reached out to a number of experts in consumer marketing & psychology for insight.
You can check out each person’s thoughts by clicking on their respective name below or skip to the Takeaways section for a quick synopsis and some actionable advice.
Meet Our Experts
- After a brief respite while the economy was on high-alert at the end of the recession and in its immediate aftermath, credit card debt is again on the rise and approaching unsustainable levels.
- Consumer overconfidence about future income and economic conditions serves as the primary rationale for this type of dangerous overleveraging.
- We also have a strong sense of entitlement, very selective memories, and a desire to attain the same luxuries as parents and other role models without making the same sacrifices they did (we see the result, not the work it took to achieve).
- It’s in the best interest of many industry actors to promote the idea that the economy is healthy and people should spend freely.
- People tend to confront false expectations when an anticipated event does not come to fruition (e.g. you don’t get that raise you were counting on).
- Given that widespread defaults could result from even a 15% increase in current credit card debt levels, we had better hope people see the error in their ways sooner rather than later.