Credit Card Debt: A Study in Time Horizon Theory

The NYT's Freakonomics blog had a very interesting post today about the "Fiendish Genious of Credit Card Minimum Payments." 

New research by University of Warwick psychologist Dr. Neil Stewart finds that credit card holders pay down their debts more slowly when their statements suggest a minimum monthly installment.

This is certainly timely research given the credit crisis that has plagued global financial markets. Conceptually, however, it is hardly groundbreaking. In fact, many philosophers and political scientists - from Nietzsche to Adam Smith and Edward Banfield - have explored such socioeconomic phenomena within the framework of time horizon theory.

In The Unheavenly City, a 1970s examination of urban politics and class warfare, Banfield presents his time horizon theory: a spectrum of socioeconomic decision-making with "present-orientation" at one extreme and "future-orientation" at the other. Banfield suggests that the forces of "social hereditary" (i.e. cultural transmission) and "social machinery" (i.e. political and economic institutions and factors) produce a "distinct patterning of attitudes, values, and modes of behavior" that shape the time horizons of individuals (micro) and social classes (macro). Consequently, Banfield argues, while there are no "perfectly" present-oriented or future-oriented people, the upper and middle classes trend towards future-orientation while the working and lower classes trend towards present-orientation.

Ultimately, while minimum payment policies are most certainly debt marketing ploys, they are not forms of predatory lending. In fact, one could argue that they simply encourage people to exhibit market behavior to which they are already inherently and conditionally predisposed. Namely, the acceptance of future debt for present credit.