In the first part of this series, we explored how consumer credit can enhance spending benefits without necessarily adding resources. Continuing this discussion, we delve deeper into the impact of responsible and irresponsible credit use on individuals and the broader economy.

While credit has historical roots, consumer credit systems became more prevalent after World War II in certain countries, though they are still relatively new in others. Responsible use of consumer credit enables individuals to make significant purchases that offer long-term benefits and positive returns on investment. Conversely, irresponsible use can lead to considerable debt and anxiety, affecting not only the individual but also potentially raising fees and interest rates for others.

Studies in capitalist economies reveal that most consumer credit is used to acquire assets that yield returns over time rather than immediately. This emphasises the importance of timing when using credit to purchase productive assets.

Technological advancements worldwide have also influenced consumer credit systems, particularly through the widespread use of credit cards. These cards represent a shift in the lending industry, driven by technological change aimed at reducing costs. When used responsibly, credit cards provide financial relief, especially in emergencies. However, their convenience can lead to irrational spending, as the lack of a physical transaction may cause consumers to underestimate their expenditures, increasing the risk of default.

Research has shown a positive relationship between consumer credit growth and future consumption, suggesting that credit usage rises with consumer optimism about economic prospects rather than being hindered by current debt burdens. This highlights the complex dynamics of a credit economy and its effects on consumer behaviour and economic growth.

As we continue to explore the intricacies of a credit economy, it is evident that while credit systems offer substantial benefits, they also require responsible management to avoid adverse financial consequences for both individuals and the broader economy.