What Type of Credit Did People Use to Buy Items in the 1920s?

The 1920s in the United States ushered in an era of economic expansion, often called the “Roaring Twenties.” This period saw a surge in industrial output and new manufacturing techniques, like assembly line production, making goods more affordable and abundant. As factories churned out consumer products like automobiles, radios, and household appliances, the American economy shifted. This transformation moved the nation towards a consumer-driven model, where acquiring goods became central to daily life.

Installment Plans

Installment plans emerged as a primary method for consumers to purchase larger, more expensive items in the 1920s. These plans allowed individuals to acquire goods immediately by making a relatively small down payment, followed by a series of regular, fixed payments over a predetermined period. For instance, a typical down payment might range from 10% to 33% of the item’s price, with the remaining balance paid through weekly or monthly installments, often spanning 12 to 24 months. This “buy now, pay later” concept enabled average Americans to own goods they could not afford to purchase outright.

The types of items commonly bought on installment plans included automobiles, furniture, refrigerators, vacuum cleaners, and radios. For example, around 60% of all furniture and 75% of all radios were purchased using these plans. Finance companies played a key role, often affiliated with manufacturers and retailers to support sales. These companies borrowed from banks to provide financing to dealerships and directly to consumers, leading to a rapid growth in consumer credit.

Installment buying fueled mass consumption by making durable goods accessible to a broader segment of the population. The practice allowed families to spread the cost of expensive items over time, transforming purchasing habits and contributing to the economic boom of the decade. While enabling widespread ownership, these plans typically included interest charges, meaning consumers ultimately paid more than the initial cash price of the item.

Charge Accounts

Charge accounts provided another form of credit in the 1920s, primarily offered by department stores and other retailers. These accounts allowed customers to purchase items and accumulate a balance, which was then billed, usually on a monthly basis. Unlike installment plans, charge accounts often expected the full balance to be paid each month, though some arrangements permitted partial payments with an added interest charge.

Items typically purchased using charge accounts were smaller, everyday items like clothing, rather than large durable goods. These accounts fostered customer loyalty by providing convenience and a streamlined shopping experience within a specific store. Department stores even issued metal “charge plates” or coins to customers, serving as early identification for these accounts.

Charge accounts were predominantly utilized by middle and upper-class consumers who had established creditworthiness with particular retail establishments. This system created a relationship between the customer and the store, encouraging repeat business. While not as widespread for large-ticket items as installment plans, charge accounts were an important part of consumer credit for routine purchases.

The Mechanisms of 1920s Credit

The widespread adoption of credit in the 1920s reflected a shift in societal attitudes towards debt. Previously, debt often carried a social stigma, viewed as a personal failing. However, during this decade, it transitioned into an accepted, and even encouraged, means of consumption. This change was influenced by aggressive advertising campaigns that promoted the idea of “buy now, pay later.”

Advertising agencies employed psychological techniques to create demand, using mass media like newspapers, magazines, and radio to reach a broad audience. These campaigns emphasized how products could fulfill desires for status, convenience, and a modern lifestyle, often convincing consumers that new goods were necessities. The general principles behind credit extension also evolved, with a greater focus on a borrower’s future earning potential rather than solely on their current savings.

The infrastructure supporting consumer credit expanded considerably. Specialized credit departments emerged within stores, streamlining the process of extending credit to customers. Concurrently, independent finance companies grew rapidly, focusing exclusively on consumer credit, particularly for automobiles and other durable goods. These mechanisms contributed to the consumer boom, making it easier for many Americans to acquire goods and reshaping the economy.