Why Use Credit
View credit as a tool. It’s part of the way you conduct your financial life to get the things you need, such as cars, homes, technology, furniture and appliances. And of course, credit can be a necessary cushion in emergencies.
Using credit also spurs the economy:
- Many small businesses rely on loans to fund their start-up costs. By employing a few workers, a new shop owner boosts the income for families in the community. These families then use their earnings to buy goods and services from other businesses, making those businesses grow.
- Borrowing also allows consumers and businesses to spend when their income isn’t increasing. That can help the economy grow.
However, if too many businesses and consumers borrow more than they can afford, it can end up hurting the economy.
Consumer Spending and the Economy
Consumer spending fuels 70 percent of our nation’s economic growth and this can boost consumer confidence. When confidence increases, the economy usually expands, and that is good for everyone.
When consumers spend more money, demand for products and services increases. To meet the new demand, companies buy more equipment, hire more workers and give more pay raises. That means employees now have more money to spend — and the cycle of economic growth continues.
Source: Flow of Funds Accounts in the United States, Federal Reserve 2011