ICFE eNEWS #16-34 - September 28th 2016
What Smart People Know About Credit Cards
By Jim Garnett, a/k/a Ask Mr.G, a member
of the ICFE's Board of Educational Advisors
Smart people know something about credit cards that the rest
of us need to learn. The knowledge of this one fact results in
smart people using their credit cards differently than the rest
So, what is it that smart people know about credit
cards that we need to learn? Simply stated: "When we use a
credit card, we are not spending money, we are borrowing money."
Because credit cards are such a convenient way to buy things
and because we use them so often, they seem like they are
another type of "money." Most likely, this is why they are
occasionally referred to as "plastic money."
illustrate to high school kids that this is an illusion, I have
often held up before the class a jar full of credit cards and
asked, "If there are 300 credit cards in this jar, and each card
has a $4000 credit limit (buying power), how much money is this
jar of cards worth?"
Someone eventually will shout out
the "right" answer: "$1,200,000." I then say, "And that would be
the correct answer IF credit cards were money. Since they are
not, this jar actually represents $1,200,000 of debt, not
Intellectually, we may acknowledge that credit
cards are not money, but practically using them so often to buy
things makes it feel like we are spending "money" when we use
This is, no doubt, why one college student recently
told me, "I'm glad I have a couple of credit cards, because even
when I am flat broke, I always have money in my pocket!" And
another client listed her credit cards as a "source of income."
Again, the simple but vital fact to know is this: "When we
use a credit card, we are not spending money, we are borrowing
Now, let me illustrate this to you: Two women go
to the mall to shop for some needed items. Neither of them
carries cash, and neither of them carry a checkbook. The first
woman uses a credit card to purchase her three items, but the
second lady, who does not own a credit card, does something
quite different. She drives to her bank before each purchase and
secures a loan to pay for her items. Thus, she makes three trips
to the bank and secures three different loans in order to pay
for her three purchases.
At first glance it may seem like
these two ladies used two different financial transactions to
pay for their purchases, but not so! Both of them borrowed
money, one with her credit card, the other with a bank note.
Both created debt that must be repaid.
And that is the
point! Each time we use a credit card, we secure a loan through
a bank, and that loan must be repaid. We have pre-approval to
borrow up to a certain amount of money with terms of repaying it
by a certain time. We do not physically make a trip to the bank,
but other than that, the transactions are virtually the same.
That is what smart people know about credit cards, and that
is why smart people do not look at their cards as the ability to
spend money. They see them as the ability to borrow money and
So, now that you know what smart people
know, what will you do with that information? Will you whisper
to yourself the next time you are ready to use your card, "I am
about to borrow money and create a debt that I must repay."
By understanding this one fact about credit cards, we will
automatically be much more cautious about when, where, and how
much we use them.