Consumer Debt
Consumer
debt defined as any consumer credit that is outstanding. In macroeconomic
terms, it is debt which is used to fund consumption instead of investment.
Some
consider all debt incurred for anything
else other than investments to be unwise, while others believe that
consumer credit is beneficial in helping the economy grow further.
The difference between these two
perspectives is most often a matter of personal values, which later
manifest into widespread social biases. Historically, across many
cultures, being in personal debt was considered almost immoral and called
for contempt from peers since it implied that the debtor did not have
ample financial strength to back his requirements. More recently, an
alternative analysis reveals that consumer debt can also be looked at as a
way to increase domestic production. If credit is readily available, the
increased demand for consumer goods should also cause an increase of
overall domestic production.
Both domestic and international economists
have supported a recent upsurge in the South Korean consumer debt for
instance, which has helped fuel economic expansion and hence opened up new
doors to improvement. On the other hand, credit card debt is almost
unheard of just across the sea in Japan and China, this is considered to
be so owing to long standing historical biases against personal debt and
also possibly due to the economy still being underdeveloped, as is the
case with China. Theoretical reasoning aside, personal debt is surely on
the rise, particularly in the United States of America.
The most common form
of consumer debt have been seen to be credit card debt, payday loans, and
other consumer finance, which are often at higher interest rates as
compared to long term secured loans such as mortgages. Interest rates vary
for each of these depending upon the current economic situation along with
the financial status of the individual; about 12-15% per annum is usually
considered the norm.
Long term consumer
debt is often considered to be fiscally suboptimal. While some consumer
items may be useful investments and do justify debt, such as in the case
of automobiles which are usually but not always exempted in discussions of
consumer debt and business suits, most consumer goods do not justify the
debt. For instance, incurring a high interest consumer debt through buying
a big-screen television now, rather than saving for it, can not usually be
financially justified by the subjective benefits of having the television
earlier.
