Some time ago I had an opportunity to saw a short video of Mr. Dave Ramsay on The Dave Ramsey Show. During which one of the callers rang and asked why credit cards are bad. You will find this video by googling phrase: “Why Are Credit Cards Bad? I Never Pay Interest and They Make Me Money”
Let’s explain one thing:
Credits cards are not for building wealth, there are just for convenience. The basic function is convenience and safety. Period. And the best counter-example to Mr. Dave Ramsey is the American Express card; by the way one of the oldest existing cards. The reason is, that in AmEx you cannot be indebted. You can spend any amount of money but at the end of each billing month you have to pay the whole amount. It’s like cash in plastic. AmEx is absolutely ruthless and if you don’t pay and the end of the month, they take away your card. It is essentially an equivalent of paper money.
What Mr. Ramsey says is pure populism, because it is based on statistics. From the fact that 99% of people cannot pay off their credit card and they get into debt spirals, doesn’t follow that credits cards are bad, only that people are just stupid. But at this point Mr. Ramsey is not discovering any America because it is proven for years that 95% of people are stupid. That is unfortunately true. The fact that banks are feeding cynically on that general stupidity doesn’t make the idea of credit cards bad. You just have to learn to use them properly.
But in this sense you have to learn it (the use credit cards) the same way you would teach yourself to use any dangerous tool, gun for example. The unintentional or incompetent use of a gun can hurt or kill someone. If you make the mistake of thinking the Mr. Ramsay’s way, it will turn that 95% of people should not drive a car. Only difference is that to drive a car you have to take courses and pass exams; to use a credit card it is not required. And this is the problem. Lack of a financial education 🙁
Perhaps financial education is too difficult for many people, and the only way is Mr. Ramsey’s way. To proclaim all credit card evil incarnate, satanic invention without going into any explanation. However, I think that if we’ve introduced financial education into primary school then the next generation would have no problems with credit cards; or at least much smaller group than now.
On my blog www.morethanmoneysavings.com I will do a short credit cards financial education. I am going to split this topic into several articles explaining how credit cards work, how much they cost, what benefits and threats they carry. Maybe I’m naive, but I hope some of you will get valuable lessons from the following articles:
- Are Credit Cards really as bad as they say about them? (this blog)
- How do Credit Cards work?
- How much does Credit Cart cost?
- Cons and Pros of credit cards? And … “Don’t leave home without one!”
As a curiosity I will mention also that the idea of credit cards was actually invented thousands years ago by the Phoenicians. When a rich merchant (Today’s trader) traveled from i.e. Egypt to Persia or even to China, he would not carry with him money he would need for his trades. For obvious security reasons any merchant would not travel with gold, silver etc (these being then the only money). Instead he would carry with him a credit letter from one of the Phoenician Trading houses. It was based on the fact that he left a specified amount of money with a particular commercial trading house, say in Thebes in Egypt. He then would be provided with a letter of credit exchangeable in the distant India at another representative of the Phoenician merchant for the appropriate amount of money. From this idea to credit cards is just one short step 🙂
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Thank you and wish you a successful budgeting. If you have any questions – just comment 🙂
Cheers and see you with a next article,