Not So Fugal After All

For some months now there have been reports of declines in credit card debt, which have been interpreted as evidence of greater thrift and caution on the part of American consumers. The economy is in trouble, and in hard times card holders are keeping their credit cards close.

But gradually a different picture has emerged. Much of the decrease in total indebtedness appears to come from bank write-offs. Banks have begun to “charge off” debt they believe is unlikely to ever be repaid. Here Michelle Singletary report on this write-off phenomenon, poking a hole in the early analysis, and in today’s New York Times,Christine Hauser provides more evidence that, rather than a sign of greater self-control among consumers, the decline in credit card debt is an indication of the sad state of affairs at the bank:

A study released last week by Evolution Finance’s CardHub.com, calculated that financial institutions charged off about $20 billion each quarter from early 2009 through early 2010, about equal to the amount of the decline in outstanding credit card debt.

So will we ever learn to be more thrifty? There are plenty of reasons to hold back spending now, but the urge to swipe remains a powerful force. The psychology of spending in the contemporary world is largely unchanged by the current economic conditions. Furthermore, the broad cultural changes that would bring about different attitudes about spending, thrift, and consumption have yet to emerge. I wouldn’t hold my breath.