The Usage of Credit and Debit Card Facilities - Term Paper Example

The consequences of Credit and Debit Cards Name Grade Course Tutor's Name Date Table of Contents Abstract 3 Introduction 3 Methodology.. 3 Finding 4 Analysis 5 Conclusion 6 References…………………………………………………………………………………………7 Abstract Credit and debit cards are used to pay for goods and withdraw money from bank accounts respectively. The focus of this report is to highlight the consequences of credit card use. Credit cards have offered modern consumers the ability to acquire products at their convenience. However, they have made many consumers broke. Introduction The ever increasing consumer spending habits has contributed a great deal in the adoption of credit and debit cards. In this generation, electronic payment services has revolutionized money and baking. The usage of credit and debit card facilities has generated various consequences that include; increased safety, convenience in transaction matters, uncontrolled consumers' spending habits and a liability of payment for lost debit and credit cards. In most cases, customers have found themselves straining their financial ability. Our focus in this report is on the positive, and the negative consequences that these electronic payment services have brought to consumers and the economy. Methodology In this report, we are going to discuss credit card use in China and America considering the fact that the use of credit and debit cards has significantly increased in recent years. This has made consumers have the freedom and potential to easily buy whatever they need; our group identified various sources which include books, magazines, journals and newspapers that are available via the website. Work was assigned into four sections. Saleh has been assigned a topic covering the consequences of credit and debit cards, Huda will give the definition of credit card, Yu will expound on the growth of credit card usage in China, and finally Hue will explain the benefits and drawbacks of credit card use. Finding Sherman and Mintzberg found out that credit card use has addiction in it because of the unplanned borrowing and purchases made by different consumers. This has left many middle income parents broke, shifted consumers’ shopping habits and caused a new consumer culture according to Warren and Tyagi. Evans and Shmalensee both reported that credit card use has revolutionized the modern customers and economies. Credit card use has resulted to new consumer habits according to Anup and Schor. Jarvis projects that as the population of different countries increase rapidly, electronic payment services will be the next crisis. Manning says that the consequence of using credit and debit cards does much harm to the consumer than the obvious benefits of freedom to buy and borrow. According to Smith, the extents of credit card use in countries differ. The use of credit card services is really growing but some countries are reluctant to credit card use. Analysis According to Manning, there has been an increased interest from the American people in accessing credit and debit services. It is reported that the number of credit cards available in America doubles the number of population available. This is true because a big part of these consumers use electronic payment services in small transactions like buying groceries and visiting coffee shops (Manning 2001, p.112). Manning sees this as a serious threat to the economy of America because most of the consumers end up being extremely broke. This makes it much difficult for a majority of American citizens to save and invest. Despite being convenient to use, they are also responsible for consumers’ poor spending habits. This information is reliable because it has been confirmed by Warren, that credit card use in America has left many middle-class parents broke (Manning 2001, p.112). Mintzberg observes that credit cards offer the consumer or the holder of the card the ability to paying for commodities with a promise for future payment. When there is an increase in the interchange fees, there must be a subsequent increase in the debit cards cost. This is also echoed in Evans and Schmalensee’s work where they say that pushing this increase to the consumers; they will shift in the patterns of their payment. In event that this occurs, the debit cost will have played a big role in the decision making process regarding consumer preference (Mintzberg 2010). Considering that credit card use is not secure enough, Mintzberg suggests that companies have to closely study card holder’s credit worthiness. The use of credit cards does not provide for any security like assets that can be sold or acquired to recover money (Mintzberg 2010). In Evans and Schmalensee’s book, electronic payment service has developed and shaped the consumers in recent times. They both argue that cards have provided modern consumers with limitless freedom and ability to choose withdraw money from bank accounts and goods at their convenience. But before choosing to use a credit card; the holder identifies the added value like reduced rates of interest, favorable conditions and certain appraisal provisions (Evans, D and Schmalensee 2004, p.27). Credit card use comes with interest rates that tend to deduct some percentage of money from the consumers’ accounts. These two authors believe that consumers who see the cost of credit card as not being favorable prefer the use debit cards. If the cost of credit card rises, consumers are most likely to opt for other credit card transactions (Evans, D and Schmalensee 2004, p.27). According to Jarvis, credit card is the next crisis. That the providers of these items have realized the consumer identification needs and therefore they have developed and branded cards accordingly. Companies offering card services have shifted their focus and now are interested in college students. Jarvis estimates that ninety percent of college students operate the electronic payment services (Jarvis 2009). The ability to spend using the credit cards is inversely proportional to the ability to save. This essentially means that the more one uses credit card services, the lower the rate of saving. People in such situations depend on borrowing. The middle class economy of China is really growing and its general economy too. Just like Manning, Jarvis expects the population to grow further and that the effects of credit card use will be massive (Jarvis 2009). Conclusion Credit and debit cards are electronic payment services which consumers use to pay for goods and access bank accounts respectively. Credit cards have been considered as close substitutes to debit cards. The ever increasing consumer spending habits in China has contributed a great deal in the adoption of cards. The usage of these facilities has generated various consequences ranging from increased safety, convenience in various transaction matters to over spending. References Anup, S 2003, Global issues: Creating the Consumer, viewed 22 November 2012, Evans, D & Schmalensee, R 2004, Playing with Plastic: The Digital Revolution in Buying and Borrowing, MIT Press, Massachusetts. Jarvis, W 2009, The Next Crisis, Viewed 22 November 2012, < http://hbr.org/2009/06/the-next-crisis/ar/1 > Schor, J 2005, Born to Buy: The Commercialized Child and the New Consumer culture, Scribner, New York. Scurlock, D 2007, Maxed Out: Hard Times in the Age of Easy credit, Scribner, New York. Sherman, L 2009, Spending Habits, viewed 22 November 2012, http://www.forbes.com/2009/05/20/american-consumers-overspending-lifestyle-real-estate-credit-card-debt.html> Smith, E 2011, Credit card guide: How Cardholders in Other countries use Credit, Viewed 22 November 2012 Manning, R 2001, Credit card Nation: The consequences of Americas Addiction to Credit, Scribner, New York. Mintzberg, H 2010, The Chinese Economy, viewed 22 November 2012, Warren, E & Tyagi, A 2004, The –Income Trap: Why Middle-Class Parents are Going Broke, Basic Books, New York. Read More