Today, using credit cards, online payment systems, and loans has become a normal part of our daily lives. People can buy products and services even when they do not have enough cash on hand, and they repay later. However, this was not always the case. If we look back into history, we will find that credit was not widely used by ordinary people until the 20th century. In fact, many historians and economists point out that credit only became common after 1920. To understand this clearly, we must explain why using credit to buy products and services wasn’t common before 1920.
In this blog, we will look at the social, economic, and cultural reasons behind this shift.
Limited Banking and Financial Systems Before 1920
One of the main reasons credit was not common before 1920 was the lack of developed banking systems. Banks were not easily accessible to ordinary people. Most of the financial institutions mainly served businesses, traders, and wealthy individuals. For the average working-class family, taking credit or loans was either too expensive or simply not possible.
Additionally, the concept of consumer credit—the idea of borrowing money just to buy household items—was not well developed. Instead, banks mostly provided loans for large business investments, land, or industrial activities. This made it difficult for everyday people to borrow money for personal spending.
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Strong Preference for Cash Payments
Before 1920, society was largely cash-based. People believed in paying for goods and services only with the money they already had. Paying with cash was considered safe, honest, and practical. Borrowing money for small purchases was seen as risky and unnecessary.
Many people also believed that living within one’s means was a moral duty. Debt was often associated with irresponsibility or poverty. Therefore, instead of thinking of credit as a helpful tool, people saw it as a dangerous financial burden. This cultural attitude kept credit use very limited.
Fear of Debt and Financial Instability
Debt was viewed negatively in the past. Families avoided borrowing because it created a sense of insecurity. If a person could not repay, it might lead to social embarrassment, legal troubles, or even loss of property. Unlike today’s structured credit systems, earlier debt often had very harsh repayment conditions.
Since there were fewer legal protections for borrowers, people were afraid of falling into long-term debt traps. Because of this, credit was not a preferred choice for everyday shopping before 1920.
Limited Availability of Consumer Goods
Another important reason was that consumer goods were not as widely available before the 20th century. In the 1800s and early 1900s, most families focused on basic needs like food, clothing, and shelter. Luxuries such as radios, automobiles, or household appliances were not common in most homes.
Since there were fewer attractive products to buy, people did not feel the need to use credit. Expansion of industries after the First World War led to mass production of goods, which increased consumer demand. Only then did credit systems become more practical for ordinary families.
Lack of Organized Credit Systems for Consumers
Before 1920, there were no structured credit systems like credit cards or installment plans. A few department stores or local merchants sometimes allowed trusted customers to buy now and pay later, but this was based on personal relationships rather than an organized financial structure.
It was only after 1920 that installment credit plans became popular. Companies started offering “buy now, pay later” options for household products, cars, and appliances. This made it easier for people to purchase expensive items without paying the full amount upfront.
Rural Lifestyles and Limited Urbanization
Before 1920, a large portion of the population in many countries, including the United States, lived in rural areas. Rural lifestyles were self-sufficient. People grew their own food, made clothes at home, and relied less on consumer goods from the market.
In such communities, the need for credit was low because families mostly exchanged goods and services locally. As urbanization increased in the 20th century, cities grew, industries expanded, and consumer culture developed. This shift made credit more useful and practical after 1920.
Social Attitudes Toward Borrowing
Cultural beliefs strongly shaped financial behavior. Borrowing money was often seen as a sign of weakness or failure. Many families took pride in saving money and paying in cash for all purchases. Religious teachings and social values also encouraged people to avoid debt.
Because of this, people before 1920 were more likely to wait and save before buying expensive items. This way of thinking kept credit uncommon in society.
Growth of Advertising and Consumer Culture After 1920
One major factor that changed everything was the rise of advertising. After 1920, companies began promoting products in newspapers, magazines, and later on, radio. Advertising created a desire for modern goods such as refrigerators, washing machines, and cars.
To meet this growing demand, companies introduced installment payment plans. This was the beginning of consumer credit becoming popular. Before this period, advertising was limited, and people did not feel pressure to buy beyond their basic needs.
The Role of the First World War
The First World War (1914–1918) also played an indirect role. The war led to rapid industrial growth and mass production techniques. After the war, many factories shifted from producing weapons to producing consumer goods.
The post-war period saw an increase in job opportunities and wages, which gave families more confidence to buy products on credit. Before the war, economic uncertainties made people less willing to take financial risks, which is another reason why credit was less common.
Legal and Institutional Barriers
Before 1920, there were few legal structures to support credit transactions for consumers. Interest rates were often very high, and there were no strong laws to protect borrowers from unfair practices. Without consumer protection laws, credit remained dangerous and unreliable.
After 1920, governments and banks developed safer systems for consumer loans, making credit more trustworthy for ordinary families.
Technological Advances and Banking Innovations
The development of better banking systems and record-keeping also made credit safer after 1920. Before this, it was difficult for lenders to track who borrowed money and whether they repaid on time. Without strong record systems, many merchants avoided giving credit.
With modern banking practices, credit reporting, and installment plans, lenders felt more secure. This shift encouraged both banks and consumers to accept credit as part of daily life.
Comparison Between Pre-1920 and Post-1920 Practices
- Before 1920: Credit was rare, used only in special cases, and based on trust or personal agreements. Most people preferred cash payments.
- After 1920: Credit became organized, with banks and companies offering installment plans. Consumer goods became more available, and cultural attitudes toward borrowing changed.
This comparison shows how the 1920s marked a turning point in consumer credit history.
Why Credit Became More Common After 1920
To summarize, credit expanded after 1920 because of:
- Mass production of consumer goods.
- Rise of advertising and consumer culture.
- Safer and more structured credit systems.
- Growth of urban lifestyles and banking institutions.
- Changing attitudes toward borrowing money.
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Conclusion
To explain why using credit to buy products and services wasn’t common before 1920, we must look at the economic, social, and cultural conditions of that time. People preferred cash payments, feared debt, and lived in self-sufficient rural communities where borrowing was unnecessary. Banking systems and consumer credit structures were underdeveloped, and goods that encouraged installment plans were not widely available.
However, after 1920, the rise of industrial production, advertising, urbanization, and organized financial systems changed everything. Credit became a trusted way to buy goods, and people accepted it as part of modern life. This transformation shaped the consumer culture we know today.