The Importance of Being in Debt

More U.S. consumers are more heavily in debt than ever before, but the burden seems to rest lightly on the nation's shoulders. By buying his furniture and house on the installment plan, charging his clothes, sending his kids to college on a loan, and taking off on a fly-now-pay-later vacation, the American consumer has piled up a truly phenomenal $280 billion debt-and is rapidly adding to it. Families are up to their eaves in $190 billion worth of mortgages, also bear another $76 billion in various consumer debts. One household in two has to meet installment payments on appliances, furniture, the car or personal loans. Nearly everyone shares in the $17 billion debt burden spawned by credit cards, charge accounts, single-payment loans and other short-term credit. While their grandfathers would have considered them reckless and irresponsible, these on-the-cuff customers have stimulated the current economic expansion and are turning the U.S. into the world's first credit-based society.

The recent vast growth of this debt has led to new concern by Government and economists about just how far it can go without danger. The Government has threatened to tighten credit immediately if there are signs that it is getting out of hand, and Joseph W. Barr, chairman of the Federal Deposit Insurance Corp., has suggested that Congress next year undertake a thorough examination of the whole credit situation. Such an examination might prove enlightening, but few businessmen and bankers, who are mostly the ones who grant the credit, feel that it is necessary. So long as incomes and employment keep rising-as they have been doing steadily-the lenders are not concerned about current consumer debt. In fact, says Conrad Jamison, economist for Los Angeles' Security First National Bank: "The environment is more favorable than ever for people to go out on a limb."

Instant Cash. Convinced of this, many businessmen are busy encouraging their customers to plunge more deeply into debt, and producing new and delightful ways in which they can do it. At the Emporium, San Francisco's largest department store, salesclerks have standing orders to encourage each customer who presents cash -which seems to lower one's status in many big stores-to open a charge account. To show how painless borrowing can be, a Los Angeles finance company runs a TV commercial of a man speaking into a pay telephone: "I wanted to ask, could I borrow" At that point, money pours out of the phone, filling the booth.

Even staid banks, which used to leave most consumer credit to others, are bombarding customers with new easy-loan plans. In the competition for auto loans, which account for nearly half of all installment debt, banks have pulled ahead of the auto-finance companies by offering lower interest rates. Still the competition grows. Following the lead of General Motors, both Ford and Chrysler have set up their own credit subsidiaries, and so have General Electric and Sears, Roebuck.

The consumer, for his part, is eager to try new ways of going into debt. One increasingly popular method is for a homeowner to refinance his old mortgage, thus getting from the bank, in effect, a new loan equaling what he had already paid off on the old mortgage. New forms of charge accounts, including those that can be repaid in installments, have become so widespread that 65% of all department-store sales are now charged. Many stores are also encouraging today's affluent teen-agers to take out special charge accounts. To speed the wheels of the credit society, an Alexandria, Va., firm last week introduced a compact electronic system called Credac that will check a customer's credit within ten seconds when fed the number of his charge account.

Patriotic Duty. Credit cards have grown steadily, opening ever wider possibilities of pay-later living for businessmen, travelers and impulse buyers, who now owe a fancy $656 million. The cards can now be used like cash at most airports, hotels, restaurants and shops, and credit-card companies are scrambling to arrange more uses. The 1,250,000 holders of Diners' Club cards can charge an African safari, and credit cards are now used to get haircuts, buy theater tickets and rent mink coats. The Carte Blanche card can be flashed as an instant credit reference at 1,300 U.S. hospitals: just wave your card at the ambulance attendant.

So far, the only uneasy signs that credit may be reaching its limit are the growing number of mortgage foreclosures and personal bankruptcies-but neither has reached a disturbing level. Most Americans are so conditioned to first-of-the-month check writing that serious lapses in meeting payments are surprisingly few; bad debts total less than one-quarter of 1% of sales. Thanks in part to the tax cut, Americans now apply a record 14% of their available spending money to debt repayment, while at the same time increasing savings and building up personal assets faster than debt. Though consumers are taking on installment debts at the rate of $65 billion this year, the percentage increase is actually less than last year. But consumer credit is expected to take off on an even faster upward spiral next year as more and more new families keep forming and -like true red-blooded Americans-going into debt.

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