(from Time magazine) The Real Problem with Credit cards: The Cardholders.

[ColbertWatcher]

The Real Problem with Credit Cards: The Cardholders
By Barbara Kiviat Tuesday, May. 12, 2009

(...)

Once we've got our card in hand, our behavior becomes riddled with irrationalities. In one experiment, Drazen Prelec and Duncan Simester of the Massachusetts Institute of Technology found that people were willing to pay twice as much for basketball tickets when they were using a credit card as opposed to paying cash. Credit-card spending just doesn't feel like real money. In another study, Nicholas Souleles of the University of Pennsylvania and David Gross of the consultancy Compass Lexecon calculated that the typical consumer unnecessarily spends $200 a year in interest payments by keeping a sizable stash of cash in savings or checking while at the same time carrying a credit-card balance. In our heads, the two don't line up.

The seeming solution would be to make clear to consumers exactly how much their credit cards are costing them. In fact, over the past few decades, there has been a massive push in that direction, from the Truth in Lending Act to the "Schumer Box," which gives a one-page summary of credit-card terms in a font size dictated by the Federal Government (it needs to be large enough to catch your attention). Credit-card statements that were a page long in the early 1980s now easily run to 30. That's a lot of information. And yet America's overreliance on consumer debt has happened anyway. Why? Disclosure itself may not be enough considering the well-entrenched forms of human thinking we're dealing with. "There have been a lot of disclosure policies over the past 20 years, but they've had a limited effect on improving the market," says the University of Maryland's Ausubel. "The problem isn't in the availability of information. The problem is in the processing of the information."

(more at the link)

--http://www.time.com/time/business/article/0,8599,1897362,00.html?xid=feed-yahoo-full-nation-related">Time

[phantom power]

1. Nothing in our cognitive evolution prepares us for credit cards.

[Nay]

2. Information will never trump emotion, which is why the old way --

where CC companies thoroughly vetted anyone wanting a card -- was the better way. Now, CC companies make money off of fees, usurious interest rates,the selling of "services" to cardholders, etc. etc. It's never enough just to charge reasonable interest and be prudent. They have a vested interest in selling cards as if they were any other thing.

Add to that the emotional responses of the cardholder and you have a disaster in the making. Gotta have that! We can mortgage the house! The Joneses are way ahead of us! I deserve a break today!

And it all comes falling down.