Family Economics And Consumer Education 3 (2+1)

Lesson 11 :Credit

Advantages Of Family Credit

It is important to understand the basic implications of credit for the family; how useful it is to take credit or buy on credit and arrange for repayment from the future income. What is the purpose for which credit is useful and what may be the likely problem that credit creates for the family? All these aspects must be carefully studied before families go in for buying goods on credit or take loan from different sources for financing their purchases.
Advantages Of Using Credit
It is easy to buy certain goods for which there is current need for the family. One need not carry large amount of cash while shopping. One can buy needed goods even if one does not have necessary money and if he has the capacity to repay in the near future. Some urgent repairs and replacement which cannot be postponed can be done with the help of credit facility.

1. Easy Record Keeping: Credit intimations from bank loan, credit cards or other creditors provide a consumer an exact record of the money spent during a particular month. It gives an easy way to watch where one’s money goes. Hence it is an easy way of record keeping for a family.
2. Forced Savings: Credit is instrumental in making a consumer save and keep money every month for payment. This may also prevent the consumer to avoid unnecessary spending on daily expenses. Credit is a form of forced saving.
3. Protection during Emergency: Sudden financial emergencies can be met through credit. Credit is useful in case of illness or unemployment when income is inadequate.

Disadvantages of using credit: Using credit by families may lead to some disadvantages. Some of the disadvantages of credit are discussed here.

1. Temptation to buy: There is a likely hood of credit tempting the consumers to buy more than they can afford. This may land the families in continuous debt.
2. Expensive and costly: Buying on credit is expensive since one has to pay more than the actual price for it. Hence it is expensive and costly.
3. Impulsive buying: Availability of credit is likely to make consumers buy more than the requirement. Easy payment may lead to this type impulsive buying.

Risk of Debts: Credit may lead to the risk of debts. Consumers are tempted to buy even post-ponable items due to availability of credit. Default in payment of installments may add to debts on the part of the consumers buying items on credit.