I fear too many of us have yielded to the marketers' siren calls to buy more stuff than we need or is good for us. "You deserve it!" they assure us, pretending to care about our welfare. (The most blatant marketing I've seen lately was an ad for the candy bar at the movies: "Treat yourself. No one can see you in the dark!")

The first step on the road to over-consumption is to stop saving, which is just what many of us have done.

What's wrong with spending all your income? It leaves you without a buffer. That's why so many people are complaining so bitterly about unexpected rises in interest payments and the cost of petrol and food. Having left themselves with no buffer, they're having trouble making ends meet and are having to economise in painful ways.

But now that saving has become unfashionable, that's the way many people live. Every increase in our income is seen as an opportunity not to put something away for a rainy day, but to buy more. We've become victims of Parkinson's Second Law: expenditure rises to meet income.

And now, thanks to the bounty of modern capitalism, we no longer have to stop buying when we've expended all our income. We can just put it on our credit cards. What could be more tempting: you don't have the money to pay for the item, but that doesn't matter. Put it on your card and worry about paying for it later. Instant gratification.

Little wonder credit card debt is now at the record level of $44 billion - although that's less than 5 per cent of total household debt, with borrowing for housing making up almost all the rest.

It's the credit card debt that seems to worry us most, however, according to research by Professor Bob Cummins, of Deakin University, with the Australian Unity Wellbeing Index.

People in low-income households are especially vulnerable to feeling bad about debt. But people who can't pay off their credit card each month report lower feelings of wellbeing regardless of their income.

More than 66 per cent of high-income households have credit card debt compared with less than 40 per cent of low-income households. But of those households in each category that do have debt, the average amount owing is surprisingly similar.

It's worth remembering that we can't actually avoid saving. Our choice is only whether to save the cheap way or the dear way. That is, we can save the money before we buy or we can save it after we buy as we pay off the loan.

Saving before you buy will earn you a little bank interest; saving after you buy will cost you a lot of interest. The longer it takes you to save the required sum after you buy, the more it costs you in interest.

Of course, borrowing to buy does mean you get your hands on the item a lot sooner. So you can think of the interest you pay as being equivalent to the rent you pay for the item until you have it paid off.

I think most people buy things on credit because of their impatience to enjoy the (fleeting) thrill of owning the new thing. But another attraction is that locking ourselves into having to pay off a debt is a form of forced saving.

If we have trouble making ourselves save, borrowing is a way of imposing discipline on ourselves. Surrounded by so many temptations, some of us would never get to own anything much if we couldn't borrow to acquire it.

It's worth remembering, however, that there's a limit to how far we can use borrowing to increase our total consumption and a limit to how much we can use borrowing to bring our consumption forward in time.

The limit on how much borrowing allows us to increase our lifetime consumption comes because if we are continuously in debt, a significant portion of our lifetime income will go on interest payments rather than consumption spending.

The limit on how much borrowing allows us to bring our consumption forward is the limit on how much we can afford to borrow. Say I maintain a perpetual debt of $2000 on my credit card, paying an interest rate of 21 per cent. That means I can get just $2000 ahead of the game, at a cost of $420 a year. Doesn't sound like a good deal to me.

And when you consider that a fair bit of the stuff we acquire is an attempt to buy status - that is, it doesn't bring us intrinsic benefits but is intended to impress other people - it sounds an even worse deal. The trouble with spending to impress is that it becomes an arms race. Your spending is soon matched by others and so achieves nothing.

But it seems that under the duress of tougher economic times, our love affair with the credit card is waning. The latest figures show credit card debt growing at its slowest pace in 13 years. In early 2003, credit card debt was growing at an annual rate of more than 20 per cent. Today it's down to 5 per cent.

The number of credit card cash advances - the most expensive way to borrow - issued each month has been falling for more than a year. The number of credit card purchases is up just 1 per cent on a year ago.

I take this not so much as a sign of distress as of growing caution. The lower your debts at a time of uncertainty, the safer you are. But kicking the credit card habit does involve withdrawal symptoms.

Source: The Sydney Morning Herald