What’s Mine Is Yours: How Collaborative Consumption is Changing the Way We Live. Rachel Botsman

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      These experiments appear to demonstrate how credit cards – or even just credit card symbols – alter our perception of the value of a product. But they illustrate deeper clues into what is going on in our brains when we buy. When cash tangibly leaves our hands, we are more conscious that we are spending money than when we use a card.¹⁷ What economists such as Feinberg, Prelec and Simester have shown is that credit cards, in contrast, make the transaction less ‘real’, detaching the act of purchase from payment. The behavioural experts call this phenomenon ‘decoupling’. Perhaps it is this decoupling that explains why credit cards have become the ultimate enablers or, more accurately, tranquillizers of shopping.¹⁸ Indeed brain imaging experiments indicate that the insular cortex, the region of the brain often associated with addictions and negative feelings, experiences less activity when people pay with credit cards over cash. George Loewenstein, a neuroeconomist at Carnegie Mellon, points out that ‘the nature of credit cards ensures that your brain is anaesthetized against the pain of payment.’¹⁹

      It’s hard to imagine life before credit cards. In stark contrast to the shopping behaviour this plastic device has come to facilitate, the basic idea for the credit card was invented by an individual, not a corporation, and for a practical reason. In 1949, in Major’s Cabin Grill, New York City, Frank McNamara, head of Hamilton Credit Corporation, took his partners to dinner. Their conversation centred on the problems of a customer who had borrowed some money from Hamilton Credit, but was now unable to pay it back. When the bill arrived, it was Frank’s turn to pay, but he realized to his embarrassment that he’d left his wallet in another suit pocket at home. He called his wife and asked her to drive over and bring him money, vowing to himself that he would never let this mistake happen again. At this moment he thought about the troubled Hamilton customer who could not pay his debts and his own personal embarrassment. ‘What if there was some way to pay the bill without cash in hand?’ Frank mused. Thus inspired, Frank developed the first dual-party credit card, Diners Club, and the credit card was born. In the credit card industry, this dinner is often referred to as the ‘First Supper’.

      In just one year, twenty thousand people became card holders. Five years later, that number had increased tenfold. Other banks took note of the popularity of this new payment device, but the idea didn’t gain mass appeal until 1957. That was the year when the nation became obsessed with the story of Mr Harold Bortzfield and his wife from Lancaster, Pennsylvania, who set off on an around-the-world thirty-day trip with nothing more than an airplane ticket and a Diners Club card. Shortly thereafter American Express introduced the first ‘general-purpose’ ‘Don’t Leave Home Without It’ credit card made of plastic, and then along came ‘Master the Moment’ from MasterCard, ‘It’s Everywhere You Want to Be’ from Visa, and so on. The critical turning point in the history of credit cards was when American Express introduced the option of maintaining a revolving balance in 1959. Cardholders no longer had to pay their bills in full but could carry a balance from one month to the next. Joe Nocera writes in his book A Piece of the Action: How the Middle Class Joined the Money Class, ‘Thus did Americans begin to spend money they didn’t yet have; thus did the unaffordable become affordable.’²⁰

      Between 1989 and 2001, credit card debt nearly tripled, soaring from $238 billion to $692 billion. In 2007, it was up to $937 billion. The equation is simple: the more credit we have, the more stuff we can afford to buy, the more resources are consumed and the more waste is created. The credit card (or more specifically, credit card debt) has become as much a symbol of American life as apple pie, with US citizens holding more than 1.3 billion cards. There are more than four credit cards for each American. In contrast, the Chinese have only a total of 5 million credit cards, for all 1.2 billion of the population.²¹ In Western Europe, there is only 0.23 credit card per person.

      Think about your own credit card statement for a second (that is if you are not the one in four who has never looked at his or her statement).²² What are the four logical pieces of information missing from it? You probably guessed the first two: your statement of interest and fees paid. But what about the interest rate itself and the length of time it will take you to pay off your debt at your current minimum monthly payment? This missing information begins to explain why the average family carries, often ignorantly, $8,000 of debt (over eight cards) and pays $1,000 a year in interest and fees alone.²³ The nation’s credit card charges amount to more than $1.8 trillion a year.²⁴ So what have we spent all this credit on?²⁵

      Of course most of us benefit from credit cards at some point in time. As the credit card industry says, ‘We provide the credit, in many cases, for people to start businesses . . . to buy more, to live a better life, to do things that they could never do any other way.’²⁶ So what’s the problem? Looking at the buying habits of a spectrum of consumers, we can see that credit cards have fuelled different types of unhealthy spending habits: accelerated spending, mindless spending, and latest and greatest spending. By no means are these three types mutually exclusive. It is common for one consumer to get caught in the trap of all three. The result, though, is the same and obvious: consumers spend more than they can afford and buy new stuff faster, more easily and more often.

      Accelerated spending is the ‘I’ve got to have it right now’ shopping mentality that leads us to make purchases we can’t afford. David Laibson, an economist at Harvard, notes, ‘Our emotional brain wants to max out the credit card, order dessert, and smoke a cigarette. When it sees something it wants, it has difficulty waiting to get it.’²⁷ Most people’s brains are not wired to do the ‘buy now, pay later’ calculation, as we struggle to understand the principles of exponential growth (which is precisely what credit card interest is). Jonathan Zinman, an economics professor at Dartmouth College, uses an old puzzle to illustrate this point. Imagine a chessboard with $1 on the first square, $2 on the second, then $4, $8, $16 and so on. How many dollars on the final sixty-fourth square? Okay, so if you are like us, your brain does not even try to figure it out, but instinct would suggest it is somewhere around $100,000. Actually, the sixty-fourth square contains $9,000 quadrillion.²⁸ When we borrow money to buy something now, we do not contemplate the interest hangover. Our brain can’t compute the cost of our actions, at least in the moment.

      Mindless spending is the ‘I don’t know what I spent my money on’ type of spending that can take the form of aimlessly wandering around the shopping centre or popping into shops during your lunch break and coming home with things you never intended to buy. The moment when a person shifts from being a conscious consumer shopping for a specific item to an impulse buyer has been named the Gruen Transfer, after architect Victor Gruen, who constructed the first shopping centre in 1956.²⁹ Gruen’s original vision for the centre was to create an ‘idyllic shopping environment’ and a ‘kernel of the community’ – a grand plan far removed from the disorienting and sprawling maze we experience today.

      Latest and greatest spending translates into ‘I’ve got to get it because it is bigger (or smaller), better, faster or even just newer.’ In most instances the existing product still functions; nevertheless it cannot fulfil our desire to have the latest version available. We tend to value whatever is new and original over what is old, durable or used.³⁰ This tendency is not so far removed from the ‘utopia’ described in Aldous Huxley’s classic fantasy Brave New World, where children are indoctrinated from birth to consume. Newness as a trait is something to be cherished.³¹ In Huxley’s imagined world, these children undergo conditioning from teachers who whisper in their ears as they sleep, ‘I do love having new clothes. Ending is better than mending . . . old clothes are beastly. We always throw away old clothes. . . . The more stitches, the less riches; the more stitches . . .’³² The philosophy of Mustapha Mond, the dictator of

      Brave New World, is ‘We don’t want people to be attracted by old things. We want them to like the new ones.’

      Law of Life Cycles

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