The Role of Money and Credit in the United States


Money plays a significant role in people’s everyday life as it is an important resource for the quality of life, allowing receiving a good education and increasing the chances for business success. Markets have been existing in the world for thousands of years, however, societies did not measure the well-being of their people by the number of earnings. In the middle of the 19th century, “the United States—and to a lesser extent other industrializing nations such as England and Germany—departed from this historical pattern” (Cook, 2017, para. 2). At that time, American society began to accept dollars as a way of measuring progress.

This shift became a starting point for the further transformation of the country, leading to the development of the financial sector and the appearance of credits. Today, money plays one of the major roles in the everyday life of people in the United States, permitting them to increase their life quality. However, such an influence of the currency has also led to the appearance of multiple problems, including a situation of the financial crisis and credit growth.

The Role of Money in the United States

Major Functions of Money

Money is crucial for people as it allows for paying for goods and services and provides opportunities for receiving education of higher quality and for business development. According to a standard economic theory, there are three basic functions of currency: medium of exchange, unit of account, and store of value (Brugger, Jakelja, & Kraemer, 2017). First of all, money is a medium of exchange, which signifies that it is a method of payment in all places across the country.

According to the legislation of the USA, paper money and coins “are legal tender for all debts, public charges, taxes, and dues” (Board of Governors of the Federal Reserve System, n.d., para. 2). This statement means that the country’s currency is valid and legal, thus, people’s right to pay with it is protected by the law.

The second function of money makes it a unit of account, meaning that people use it as a measure in all economic transactions. According to the opinion of numerous economists, “while the medium of exchange function relates to the real money supply, the unit of account is a theoretical concept, independent from the amount of money” (Brugger et al., 2017, p. 4). The last function is a store of value, meaning that people can hold their money for it to become more effective in the future.

In 1936, British economist John Maynard Keynes highlighted the major reasons for storing currency: the transaction motive (everyday payments for goods and services), the precautionary motive (unforeseeable expenditures and investments), and the speculative motive (the decrease of losses from holding assets) (as cited in Brugger et al., 2017). The store of value function is important due to the operation of central banks all over the world as they are interested in storing valuable assets. However, it is important to remember that currency is not completely stable as it can be influenced by multiple economic and political factors, and may lose its purchasing power.

Apart from the economic functions, there is a sociological approach, implying that in simple market relationships, money is used for consumption, being more than a link between those desiring to exchange goods and services. Currency should be accumulated with the help of transferring it into capital and being profitably invested. According to this approach, there are four principal functions: the freedom-granting, the signaling, the community-building, and the function regulating behavior (Brugger et al., 2017).

The first one means that money gives almost unlimited opportunities to those who have it. The second notion implies that finances perform as a signal of social status and influence. This function is also reflected in the price of objects as the low price signals their availability, and the high price indicates that it is luxurious. The community-building effect implies that money is used for transactions in marketplaces not only inside the country but all over the world, establishing the connection between different cultures. The last function signifies that people’s behavior can be controlled by paying or charging money. From this perspective, finances exhibit multiple functions, helping communities to develop.

The Financial Crisis and Current Role of the Dollar as World Money

The dollar, representing the currency of the United States, is the most utilized in the world, both for the payments for goods and services inside the country and international financial operations. Most economists use the concept of the currency hierarchy to analyze the dominance of the dollar (Fritz, de Paula, & Prates, 2018). This notion categorizes currencies according to the principle of liquidity and the American money is the leader of this chart.

However, in 2007-2008, there was a financial crisis with numerous experts predicting the end of the dollar. This situation happened due to “the increase of the U.S. interest rate, and the following capital flight they suffered as a consequence, which depreciated their exchange rates, and made their external debt harder to pay” (Villavicencio, 2020, para. 6). Nevertheless, the peak of the crisis was overcome and the role of the dollar remains important for American society as it provided the country with autonomy in financial matters and the chance for accumulating trade deficits. Today, the real value of the currency depends on the number of products and services a dollar can purchase.

Financial Literacy and Ways for Healthy Use of Money in Everyday Life

Money is an important component of people’s everyday life and financial literacy is a concept, required to be learned by each individual. Today, numerous experts assume there is a strong need for a “quality personal financial education to ensure that individuals are prepared to manage money, credit, and debt, and to become responsible workers, heads of households, investors, and citizens” (Willis, 2008, p. 199). Meanwhile, others, for example, Willis, 2008, argue that “in the world that financial-literacy education advocates, consumers are but wealth maximizers, looking out for their financial interests rather than shared societal and civic goals” (p. 285).

According to this opinion, people have other important tasks in their lives even without the necessity of becoming financial experts. However, as all families need to take everyday decisions about their financial issues, including credits and insurance, it is important to know the ways for handling money correctly.

The first step in learning to treat money is determining the real financial state by estimating the assets and considering all the obligatory payments. It is important to analyze all the expenditures and find weak points to guarantee there will be no increasing debts. To make savings, the first step would be defining a specific goal, which would motivate to have a more reasonable approach to money usage. The next step is to think about income and ways for increasing it.

Putnam Investments found that “75% of people who used its lifetime income analysis tool boosted their savings rate by an average of 25%” (Clark, Rosato, & Mangla, 2015, p. 56). Another important way for saving money is freeing up cash as interest rates remain low and there are ways to find better solutions for that part of finances. The most crucial factors influencing the right distribution of money in everyday life are always thinking about one’s actions and remaining goal-oriented. Learning these rules can help to manage money efficiently, have a better quality of life, and not to collect debts.

The Importance of Credit in the United States

The Importance of Credits and Credit History in the United States

In the United States, credit is widely used in daily life, in both the private and business areas. Credit is a procedure of providing money or resources to an individual or company without immediate reimbursement by a bank. It is generally given with interest fees and a lender checks the creditworthiness of potential borrowers before deciding about the credit approval. Creditworthiness is an ability of a borrower to pay back debts and in the United States it is “measured by a “credit score,” which is calculated by three private credit reporting agencies: Equifax, Experian, and TransUnion” (Grady Firm Law, 2016, para. 3).

In case a borrower makes well-timed payments, they acquire a positive credit history, which will be beneficial for future financial operations. A positive rating will help an individual in many spheres, including rent, qualification for a home mortgage, receiving automobile and business loans, credit cards, and even higher employment chances. From this perspective, the credit history of an individual can have a significant impact on most of the aspects of their daily lives.

The Popularity of Credit Cards in the United States

All over the world, people begin to prefer using credit cards instead of cash for their payments and the United States is not an exception. According to the statistics, 86% of Americans choose contactless payment for at least some of their purchases (Study in the USA, 2019). There are several reasons, which make credit cards popular among the residents. First, this method of payment is convenient because of its safety and rapidity. Second, most banks offer rewards for having credit cards and making payments in time.

According to a recent study, “39% of millennials are most likely to use a credit card solely for the rewards” (Study in the USA, 2019, para. 8). Third, this payment method allows for building a good credit history, which is important for future loans. Following this, credit cards are extremely important in the everyday life of all Americans, helping them to make quick and safe payments, and contributing to their level of credibility.

The Importance of Consumer Credits in the United States

Another side proving the importance of the credit system in the United States is consumer credit. They are essential for the economy as it helps its development because transactions are more efficient when consumers and businesses can borrow money. For the companies, loans ease access to resources, which are required for producing goods, which people later purchase. For consumers, this system allows purchasing necessary services and items, which are too expensive to pay for all at once.

However, it is wrong to claim that credit allows living beyond one’s means as ”borrowing resources and paying them back later does not increase the total available for personal spending over his or her lifetime” (Durkin, Elliehausen, & Zywicki p. 4). The real advantage of the process is that it can increase the benefits of spending as relatively large expenditures can later give a positive return over cost. For example, loans for higher education increase the chances of finding a job. This system gives people a chance to increase the life quality through purchasing necessary items or services.

An important advantage of the credit system is that it does not imply living beyond one’s means, but permits to change the time for making purchases, making it more convenient. The only alternative to credits is saving money for each acquisition, but it may be not suitable for everyone and can result in numerous problems. For example, the delay in making a home or car repairs can lead to more damage and even to tragedies. Moreover, in times of crisis ”the ability to borrow is an insurance device for at least some consumers” (Deaton, 1992, p. 197). All of these reasons prove that the credit system is beneficial to people, making their daily life better. However, there have also been problems, connected with the extreme growth of consumer credits.

Consumer Credit Growth

Over the last few decades, there have been numerous proofs of the fact that consumer credits have been growing too fast for a long period. It has significantly increased in the afterwar years, ”from a total of $6.8 billion in current dollars at the end of 1945, consumer credit outstanding grew to more than $3 trillion at the end of 2013” (Durkin et al., p. 10). However, the comparison of the situation with other countries allows seeing a better perspective as the United States does not show the worst results.

There have been worries that such growth can result in decreases in future spending and lead to serious macroeconomic recessions, although, the evidence of it has not been found. On the contrary, experts have proved that it has a positive impact on future consumption, and the amount of consumer credit increases when people are optimistic about the present and further economic perspectives.


The money and credit system are important parts of everyday life in the United States. Finances are a crucial element of people’s existence as they allow pay for necessary goods and services. Money performs multiple functions from the economic and sociological perspectives, regulating the behavior of the country’s residents, building up the relationships between different communities, and providing almost unlimited opportunities for an individual’s development. Moreover, the currency of the United States, the dollar, remains one of the dominant ones in the world, which proves that money is a crucial aspect of the everyday life of the country’s residents.

The government of the United States also provides its people with multiple opportunities for borrowing money, including credit cards, consumer and education credits, and loans to companies for business development. All of these programs allow people to purchase necessary items and services, improving the quality of their lives. Credits are popular among the residents of the United States and one of their favorite tools is a credit card, which allows paying for products now and returning money later without any extra charges. Moreover, banks offer various bonuses to those who make payments on time.

This popularity of the credit system in the United States resulted in the appearance of a very strict system of rating the credit history. To have a good index, a person must use credit cards and take loans and pay the debts according to the discussed conditions. Having a positive record provides numerous advantages, including the easier procedure of receiving loans in the future and increased chances for employment. From this perspective, money and credits are important In the United States, helping people to improve the quality of their lives.


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