02x03 - Credit Cards

[bunniefuu]

[electronic beeping, buzzing]

[indistinct chatter]

One hundred and seventy million.

[speaks Chinese]

[narrator] It's April 2014,

and at a Hong Kong auction,

billionaire art collector
Liu Yiqian is bidding

on a rare Ming Dynasty porcelain cup.

Fair warning... Sold!

[narrator] Liu's bid wins.

This chicken cup has broken
the world record for Chinese art.

It has fetched 36 million US dollars.

[narrator] And how's he paying for it?

With his American Express Centurion card,

an exclusive card for the superrich.

Today,

we live on borrowed money.

Credit is a way of life.

There are half a billion credit cards
in the US alone.

That's an average of two
for every American adult.

And around the globe,

there are about


That's more than the number
of stars in the Milky Way.

Total credit-card debt
in the United States in 2020

is $820 billion.

If that was laid out end to end
in one-dollar bills,

it would measure almost the distance
from Earth to the Sun.

This tiny, humble piece of plastic
has changed the global economy

and the way we live forever.

But more than that,

credit cards might be rewiring our brains,
getting us more addicted to spending.

So is the credit card our flexible friend?

Or are we its servant?

[eerie music playing]

- [static crackles]
- [crowd cheering]

At the end of World w*r II,

the United States is
the world's greatest military power...

and the richest nation in history.

The economy booms
as factories pivot from a wartime footing

to churning out consumer goods.

Never before

have ordinary people been given the chance
to buy such unheard-of luxuries.

♪ A brand-new sink, a built-in oven ♪

♪ A new refrigerator and a phone ♪

♪ A kitchen phone, a bright red phone ♪

[narrator] But buying
that fancy kitchen gadget or car

straight from the showroom is expensive,

and that means many of the new goods
are out of reach for ordinary people.

After all,

Americans who grew up
during the Great Depression

know the value of pinching their pennies.

[car horns beep]

That all changes in New York in 1950.

Businessman Frank McNamara
has an embarrassing night out

at a Manhattan restaurant
where he forgets his wallet.

The next time he visits,
he brings a cardboard card

that promises payment but at a later date.

He calls it a Diners Club Card.

In other words,

"Buy what you want now,
but pay for it later."

It turns out
a lot of people like the sound of that.

[keys clack]

In its first year of operation,

42,000 people subscribe
to McNamara's credit card,

and the company rushes to enlist
the cooperation of rental-car companies...

Hello?

...hotels and restaurants.

[man] A booklet is provided with the card

listing the cooperating establishments
where they will be honored.

Many of the cooperating establishments
are in the high-priced luxury category.

[narrator] Diners Club
actually works as a charge card.

It makes money by charging
an annual membership fee

and getting a small commission
on each transaction

from participating stores and restaurants.

It shows the banks

there's money to be made
in these newfangled cards.

So how can they persuade
the rest of us that we want one?

A senior executive at the Bank of America,
Joseph P. Williams,

has a bright idea.

In 1958,

Williams signs up merchants
in Fresno, California,

to honor his new BankAmericard.

[horn honks]

Then he mails out 60,000 unsolicited cards

to the unsuspecting citizens of Fresno.

[paper rustles]

People love their new cards,
and by the end of the following year,

he's sent out two million
throughout the state.

But whoops,

more than one in five people
with the new card

never pay back what they owe.

The bank loses nearly $9 million,

and Williams resigns.

[thud]

And yet people are starting
to use such cards.

That same year,

US financial giant American Express

issues 250,000 charge cards.

And BankAmericard?

Losing that $9 million was a blip.

It's soon recognized
as the first all-purpose credit card

and is later renamed Visa.

Of course, as credit cards take off,
there's a catch.

Fail to pay your bill in full
at the end of the month,

and you'll be charged interest
on what's owed.

And that can get very expensive.

Today, the US average annual interest rate
paid for credit cards

is almost 16%.

Let's say you use your card
to buy a used car for $10,000

but only pay the minimum
of $150 each month.

You'll end up paying
over $14,000 in interest

on top of the $10,000 you owe for the car.

For that extra $14,000,

you could have bought

a second used car

plus a week-long cruise
around the Caribbean

and an electric bike

and a three-month Eurorail pass

and still have enough to attend


[bat clinks]

[cheering and applause]

Perhaps that's why banks are so eager
to get people hooked on credit cards.

[man] The young and affluent
feed the credit-card boom.

Enjoy now, pay later.

Those little plastic rectangles
will get you almost anything.

[narrator] But in those early days,

making a credit-card purchase
is not for the impatient.

The store clerk has to phone the bank,

which in turn must contact the card issuer
before the transaction is approved.

[phone rings]

Better hope they pick up the phone.

The solution comes in the mid-1960s.

IBM engineer Forrest Parry

is trying to figure out a way
to produce secure identity cards for...

Wait for it.

...the CIA.

One evening,
he comes home with a plastic card

and information encoded
on a stripe of magnetic tape.

He'd like to attach one to the other,
but how to do it?

It's his wife, Dorothea,
who comes up with the idea.

She's ironing at the time
and hands him the iron.

"Try this."

The combination of heat
and pressure from the iron

seals the magnetic stripe
onto the plastic card.

From then on,

the credit card is made in exactly
the same way as a secret agent's ID.

The financial details
of the credit-card owner

are electronically stored
on the magnetic stripe.

Swipe the card through a reader,

a magnetic head inside the reader detects
the magnetic field the stripe generates,

relays it back
to the bank's central computer,

and the sale is complete.

Still, credit cards
are mainly used in the US.

That's all about to change.

[jazz music playing]

It's Swinging London, 1966.

Just like the Americans,

the Brits find there's lots
of shiny new things to buy.

[man] Designer Mary Quant is just one
of the breakaway generation

who has now dreamed up
a revolutionary approach

to young cosmetics,

which even department stores
like Selfridges have taken up.

[narrator] In Britain,

many people still regard
personal debt as shameful.

So Barclays Bank sends out
over a million Barclaycards,

a licensed version of BankAmericard,
to select account holders.

It's pitched as an exclusive offer.

[man] Remember that apart
from buying goods and services,

the Barclaycard can also be used
to borrow cash

from any branch of Barclays Bank.

[narrator] Marketing the card
as a status symbol

is the key that unlocks the door,

changing British attitudes forever.

[disco music playing]

And back in the US,

no one's putting much money away
for a rainy day.

By 1979,

Americans are saving just 10%
of their disposable income.

It turns out
people really like instant gratification.

Perhaps a bit too much.

Studies show that when people pay
for high-end goods with a credit card,

they're prepared to pay
up to 100% more than with cash.

[metal crunches, glass shatters]

Reportedly,

McDonald's customers spend 55% more
when using a credit card.

That's like adding a large fries
to your Big Mac

every time you pay with a credit card.

[food squelching]

In the grocery stores,

shoppers using credit cards
check out with bigger baskets...

[products clatter]

...and they make more indulgent
and impulsive purchases.

[car engine revs]

But by the mid-1980s,

there's no going back.

Diners Club Cards, Amex,

Visa, and MasterCard
are honored around the globe.

And many countries
now produce their own cards.

Even the Soviet Union gets in on the act

when local banks issue
a version of the Visa card

known as the SovCard.

And in the West,

it's the era of the yuppie,
the young urban professional,

where anyone with ambition

can have a sports car
complete with its own phone,

a top-of-the-range VCR,

a remote-control TV, and cassette player.

And everyone wants expensive vacations.

All paid for
by that little piece of plastic.

[man] Many of these people
couldn't really afford this holiday,

so they booked by credit card
to defer the expense.

It'll catch up with them,

but they're not letting that
stand in their way.

[bleeping]

[narrator] By 1986,

Americans owe around $110 billion
on their credit cards.

That's about 1,000 times

what Live Aid raised for famine
in Africa the previous year.

Five years later,

it will almost double
to about $205 billion.

So, debt is all bad, right?

Well, yes and no.

Debt also fuels growth.

The financial services industry explodes,

creating jobs for hundreds
of thousands of people.

In the 1990s, the retail sector booms,

helping to fuel
extraordinary growth in the economy.

[reporter] The high-street consumer boom

wouldn't have happened
without credit cards.

In Britain now,


[narrator] Multimillion-dollar
construction projects

rely on credit to get started.

Want to buy a house or open a business?

Good luck doing that
without a mortgage or loan.

So, debt might be bad for individuals,

but it can be great
for the economy as a whole.

Now that credit cards are everywhere,

companies find themselves competing
for a smaller pool of new customers.

So they add perks to the credit cards.

Reward programs like frequent-flier miles

or hotel and rental-car points.

But sometimes
they're not terribly discerning

about whom they target.

[kids] ♪...diamond in the sky... ♪

[reporter] Three-year-old
Alessandra Scalise

is a Visa Platinum Card member.

[narrator] When little Alessandra
of Rochester, New York,

gets a credit-card application
in the mail,

her mom fills it out
as a joke and mails it in.

The tiny tot soon has her own credit card

with a $5,000 credit limit.

[reporter] The only place
this Visa card member wants to be

is near her mommy,

who will teach her
all about money and credit

when she's older.

[woman] If you're gonna charge,
you better have the money to pay.

[narrator] Clearly, there's
little checking who can pay it back

and who can't.

By the year 2000,

total credit-card debt
in America reaches $580 billion.

That's the cost of staging
the Sydney Olympics 121 times.

[flames whoosh]

Many people are spending money
they may not have,

packing on personal debt,

and with the arrival of the Internet,
that's only going to get worse.

Because once online,
you can shop till you drop

from your sofa.

Everything from books and clothes

to a brand-new car,

and all available
at the touch of a button,

enabled by that tiny piece of plastic,

the credit card,

leaving brick-and-mortar stores
out in the cold.

[reporter] At last, good news
for retailers of a bumper sales day.

The problem for the high street
is that it wasn't happening here.

It was Christmas on the keyboards

on what the Internet industry
called Mega Monday.

[narrator] By 2008,

total credit-card debt in the US
reaches a record high of $870 billion.

That's $500 billion more

than the US spent that year on the Army,

Air Force, and Navy combined.

And yet,

ready credit is still widely available.

Almost anyone can have it,
whatever their income.

Our changed attitude towards debt

leads banks to offer mortgages to people
with low incomes and little savings,

and those people
to snap up those mortgages

with no way of paying them back.

Who cares?

It's just numbers on a piece of paper.

It all comes to a head in 2008.

[woman] This is what
financial Armageddon looks like.

Red screens that scream,
"Sell, sell, sell."

[narrator] It turns out those mortgages
aren't just numbers on a piece of paper.

[men shout]

And when money owed can't be paid back,

the whole system comes crashing down,

sparking the biggest
global financial crisis

since the Great Depression.

So has the great crash of 2008
ended our love of borrowing money?

Of course not.

Where's the recession?
Everybody's shopping.

It's just the credit cards.
That's what it is.

They're charging it,
and they'll feel it in a month or two.

- When the bills come home.
- You don't feel it when you swipe it.

[narrator] By 2019,

American credit-card debt
stands at $930 billion.

And it's not just America
that's drowning in debt.

In China,

the credit-card balance
reaches $1.23 trillion in 2020.

And while UK total credit-card debt
is less than $100 billion,

that's still enough
for the British taxpayer

to fund more than 1,000 royal families.

The truth is

we're now hopelessly addicted
to our cards.

[whooping]

Literally.

A recent MIT study used MRI readouts

to show how credit-card spending
stimulates the brain's reward system,

a release of dopamine,

even more so than cash.

And that creates an urge
for further spending.

Very stylish.

- [narrator] And yet...
- ["The Blue Danube" playing]

...never has there been a time
in human history

when we have so many cool, exciting,

fun things to spend our money on.

Gadgets,

fashion,

sports,

luxurious foreign holidays.

[woman] I'm wearing
the most expensive Bluetooth headset

in the world.

So it is made out of real pearls
and diamonds and white gold.

Retail price would be 115,000 euros.

[narrator] Credit cards have made
spending money easy.

Just a quick wave of a contactless card,

a tap on our phone,

or a swipe from your wristwatch.

And it's only going to get easier.

[beeping]

Companies are already introducing
new ways of paying

using super-secure
biometric authorization,

such as fingerprints,

facial recognition,

and iris scans.

We'll soon be buying all sorts of stuff

in the blink of an eye.

So, where do we go from here?

How will our brains rewire and adapt
to this new form of payment and reward?

Will we find ourselves
even further in debt?

Can we ever trust ourselves
to spend wisely

when the credit card

is us?

[dramatic electronic music plays]