Credit Cards And Credit Card Debt Essay

Credit Cards And Credit Card Debt Essay

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-Introduction-

The use of credit card has become a fashion and symbol of status in Korea. Korea’s credit card holding ratio has reached to 89%, and America (67%), Netherland (62%), Canada (61%), Austria (47%), and Australia (28%) follow after Korea (Han, 2015). Of course, highest credit card holding ratio creates a million delinquent borrowers, and overdue charge has reached to $1,300 USD in 2016, which is historical highest debt rate. Even though a million of people are suffering from credit card debts, financial institutions keep marketing to fascinate household to keep using credit card. Moreover, majority of people do not even realise the high risk of credit card debt. What makes Korean people keep using credit card? The credit card lending boom started in 1999. Kang and Ma (n,d) argued that there was credit card lending boom after severe economic downturn in the financial crisis of 1997-1998. The policy package included tax benefits for merchants accepting credit cards, and income tax deduction linked to their credit card purchase for cardholders. However, less experienced entrants into the credit card market, and there was strong credit expansion among credit card competition (Kang and Ma, n,d).

Shinhyup is the one of them which occurred credit card lending boom. Credit card is the major business in the organisation, which is one of most profitable businesses. Shinhyup has variety options of credit cards to target diverse customers. For example, Shinhyup established a strategic alliance with many stores such as supermarkets, cafes, restaurants, movie theatres, hair shops and gas stations. Hence, credit card users can get 0.7% discount in affiliated stores. Moreover, point reward system also fascinates customers keep usin...


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...excess demand for goods and service compared to supply. In the 2nd year, 5 people work hard, and produce more goods and service, and total production in economy has become $1,000. However, suppose a person A wants to save $100 out of his total income $200 in the 2nd year. Because he wants to work less in 3rd year. Now, the bank decided to lend out A’s deposit instead of keeping in the bank. Based on the reserve ratio is 10%, the bank issues credit card to person B, and the credit card limit is $90. So, total money supply become $990 in total in the economy. In the next, total production good and service become $900 due to person A works less in 3rd year. However, the demand is worth $990 due to person B keeps using credit card (Raj, n,d). Demand is larger than supply, so price of good and service will increase until there is an equilibrium between demand and supply.

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