Using credit to buy products and services wasn’t common before 1920 primarily due to cultural, economic, technological, and regulatory factors.
Cultural and Social Factors
Before 1920, there was a strong societal stigma against debt. Borrowing money was often viewed as a sign of financial irresponsibility or failure, which discouraged people from buying on credit. People preferred to save money and pay for goods outright rather than rely on credit, reflecting a conservative approach to personal finance and spending.
Economic and Financial Infrastructure
The economy was largely agrarian and cash- or barter-based, with limited financial institutions offering consumer credit. Banks rarely made small loans for personal consumer purchases because it was risky and not profitable. Consumer credit systems and standardized credit scoring to assess creditworthiness did not exist, making it difficult for lenders to confidently offer credit to individuals.
Technological and Regulatory Limitations
Before the 1920s, advanced communication and credit reporting technologies that facilitate credit use today were absent. Credit transactions were mostly informal and localized, such as credit extended by local grocers to trusted customers. There were also minimal consumer protection regulations around credit, making both borrowers and lenders wary of using credit for purchases.
Shift in the 1920s
The landscape changed in the 1920s with industrialization, the rise of the middle class, and the introduction of installment credit plans (e.g., for cars). Better regulation and new financial products helped make credit more accessible and socially acceptable, fueling the growth of consumer credit as seen later in the century.
