A Review of Debt Inequality in America
Credit is one aspect of financial literacy we have all heard of at least once in our lives because you need it to buy most things. Acquiring credit is exceptionally more difficult when you are low-income because it tends to perpetuate a cycle of dependence. For credit to provide people with success, people must not be forced to use it from a place of scarcity.
Credit as an alternative to welfare
The article from Rachel E. Dwyer titled “Credit, Debt, and Inequality" provides information surrounding the presumed purpose for the expansion of credit. The book has a chapter, explaining that credit functioned as a “welfare trade-off” because it gave people access to things like land, housing, education, and insurance without the use of welfare resources.
The article from Dwyer goes on to explain that Americans must make investments that improve security, freedom, and democracy but this can only be achieved with the right kind of credit. As a result, people seek out credit and are often faced with risk, a lack of security, and a higher level of dependency (Dwyer, 2018). Accumulating credit is essential for upward mobility but credit can hurt populations experiencing scarcity because it increases the possibility of dependency rather than financial independence. Credit provides individuals with their basic needs and the reality is, that the potential of a negative impact on future economic upward mobility will always outweigh getting our needs met. This does not imply that if there was a system of credit that promoted financial independence rather than dependence, people would not choose that option. It is the fact that people are going without basic needs for their families and credit is accessible and provides people with a level of financial freedom most assistance programs do not.
“80 % of all American adults are in debt and over half of Americans own a credit card. The average credit card debt per household is $8,284”
How Money Works: Stop Being a Sucker: “Key figures Behind America’s Consumer Debt” Bill Fay, 2019 debt.org/faqs/americans-in-debt/
Penalized for using credit as a welfare alternative
The section above provides insight into the idea that credit was a way to provide people with access to things like land, housing, education, etc. without the use of welfare resources. With this, many families accumulate debt to meet their basic needs throughout the year. The article from Dwyer includes pieces from Halpern-Meekin et al. (2015) and Mendenhall et al. (2012) that state 85% of families that receive an Earned Income Tax Credit (EITC) use it to pay off some kind of debt or overdue bill. Statistics like this should encourage us to think about the system of credit and decide whether it is truly a system that benefits all people. Debt within communities experiencing scarcity also fuels the business of debt collectors that profit off of uncollected debt (Dwyer). The need to utilize credit in low-income communities not only limits their chances of economic upward mobility but also creates systems that further prevent it.
According to the article from Dwyer, credit is important for making investments to improve freedom, security, and democracy but if you had to take advantage of credit to meet your basic needs and use your tax return to cover the costs, does that exempt you from all that? A system for credit and debt must exist but we should question a system that creates dependence in communities experiencing scarcity that reduces chances of economic upward mobility.
Student loans overtake grants and scholarships
Back in the day if you were low-income, getting an education used to be a one-way ticket to making more money. However, credit has made getting an education a larger obstacle with the added potential to hurt your credit. The piece from Dwyer explains that the beginning of the twenty-first century showed a reduction in support for grants and subsidies from the state (Dwyer, 2018). Potential students have no choice but to take out a loan (sometimes with little restrictions) for change in higher education.
Conclusion
Credit has become an essential aspect of our success, whether an avenue to achieving our daily needs or higher education. The emergence of credit was an attempt to provide people with things they need without utilizing welfare resources. Consequently, this became a system communities experiencing scarcity must depend on. Historically, grants and state funding have made higher education more accessible but a decline in resources has forced students to depend on loans. Systems exist for the benefit of the people and we should constantly be analyzing the ones we have in place to make sure they continue to work for the people.
Dwyer, R. E. (2018). Credit, debt, and Inequality. Annual Review of Sociology. Annual Reviews. https://www.annualreviews.org/doi/10.1146/annurev-soc-060116-053420.
Fay, Bill, “Key figures Behind America’s Consumer Debt”, 2019 debt.org/faqs /americans- in-debt/.
Halpern-Meekin S, Edin K, Tach L, Sykes J. 2015. It's Not Like I'm Poor: How Working Families Make Ends Meet in a Post-Welfare World. Berkeley: Univ. Calif. Press.
Mathews, T., Siebold, S., Horner, A. (2023). How Money Works-Stop Being a Sucker. Hammerheads Publishing.
Mendenhall R, Edin K, Crowley S, Sykes J, Tach L, et al. 2012. The role of Earned Income Tax Credit in the budgets of low-income households. Soc. Serv. Rev. 86(3): 367–400.
