The following excerpt is from The Money Mentor: A Tale of Finding Financial Freedom
Iris Cassidy, a dancer in her 20s, uses a maxed out credit card on a visit to her dentist who then tells her:
“As P. T. Barnum said, ‘There’s a sucker born every minute.’ Open wide. In fact, many people who pay interest on their credit cards think they don’t. They deny the reality of what’s going on. Or maybe they plan to pay it off, so they hope that soon they won’t be paying more interest. Or they know they pay some interest, but don’t realize how high the rates are. After all, where in our educational system are the most basic aspects of personal finance taught? Nowhere, so rather than saying people are foolish, maybe we should say we have a foolish educational system. If we don’t teach about the problems, we certainly can’t teach about the solutions to those problems.”
I was feeling pretty bad at this point, not just from the pain in my mouth but also from the idea that I was a fool who paid a lot more interest than I ever imagined–especially since I’d never given it one thought, much less a second thought–and, worst of all, that I saw no way out of it. In fact, I wasn’t really sure what I owed. I knew roughly what my minimum payments on all of the cards totaled each month, but I had never thought to add up the principal. Or maybe I had thought of it but didn’t want to know.
“I’ll tell you something else about credit cards,” he went on, “People spend a lot more money using credit cards than using cash. It’s crazy, because after all our money is worthless paper. If you take a Federal Reserve Note to be exchanged, they’ll give you another Federal Reserve Note–not gold and silver the way they used to. So it’s our trust that makes the money have value, our willingness to accept it. But we’re more reluctant to part with paper money than we are to run up a tab on a credit card. Maybe the fact you get the credit card back, but not the money, makes some difference. I don’t pretend to be a psychologist, but it’s another reason why using credit cards can be so risky. Not only are you going into debt, but you’re going into debt faster than if you didn’t use the credit cards. It makes me wonder what will happen when we’re all buying stuff on the Internet, using invisible digital money. I’ll bet people spend a lot more that way than they would if they had to hand over real money.”