Before the mid 19th century, bankruptcy was considered a crime.
For example, in colonial New York, bankrupts were branded on the thumb with a “T” for “thief”. Under the Pennsylvania Act of 1785, a convicted bankrupt was flogged while nailed by the ear to the village pillory. Afterwards the ear was cut off. Hey! It could have been worse! Under ancient Roman law, a debtor could be sold into slavery. Or, how about England where bankruptcy was a felony subject to capital punishment.
William Durant of General Motors introduced automobile financing in 1916. He found that people would buy higher priced, more stylish vehicles if they offered to finance them. This helped General Motors become the largest auto manufacture over Ford, who would give customers a savings account to help them save for a new automobile.
Historically, if you wanted to buy a home you were often required to come up with 50% down and pay off the remaining balance over 5 years.
The creation of the Federal Housing administration made it possible to finance your home with a much lower down payment with the balance paid back over 30 years.
The credit card has it roots in the 18th century, when “tallymen” who sold clothing would allow purchasers to pay for clothing in small weekly payments. They would keep a “tally” of what people bought on one side of a wooden stick. The other side of the stick was used to track payments. In the early 1900s, catalogue companies, department stores and oil companies found that they could sell more “stuff” at 5% to 20% higher prices by offering to sell on credit. In 1951 Diners Club Card become the first modern credit card. In 1958 American Express issued its “Purple Card” that could be used for travel and entertainment. In 1966 “BankAmericard” was franchised by Bank of America. It was later renamed “Visa”.
As you can see over the years, credit has become much easier to obtain, with much less consequences for not paying it back.
Today everything is paid for by using debt, paying back small monthly payments at very high interest rates. Is there any question why America is so far in debt?? Now…..what do we do to reverse the trend?
– Building a stronger economy one family at a time.
Stay tuned for a new series on finances.
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- History of Debt in the United States by Richard Brough - January 31, 2020