Credit as a general practice has been around forever, but the credit card we all know (and probably have in our wallets) is a surprisingly recent development in our financial lives.

For perspective, the first birth control pill was approved by the FDA in 1960; Bank of America didn’t issue the first general purpose credit card until six years later. Most people still listen to albums that predate the existence of credit as we know it.

Since the 1966 debut of the credit card, American households have racked up debt at a pace that’s nearly incomprehensible. A new study by Clever Real Estate looks at some of the effects and causes of this financial revolution, how easy access to credit has reshaped the U.S. economy, and why things might be primed to get even worse.

How Credit Changed Behavior

Back when that first credit card was rolled out to a population that was, by and large, living within their means, the average American household held only $78 (adjusted for 2018 inflation) in revolving debt. Since then, revolving credit has increased by 24,500%, to an average of $8,000 per household. And that’s just the tip of the iceberg.

We now live in a credit-driven economy. The average household now labors under an average debt load of just over $31,000, excluding home mortgages, and many Americans habitually spend more than they earn.

According to the FINRA Investor Education Foundation, 19% of Americans spent more than they made in the past year, with another 36% merely breaking even. With numbers like that, it’s no wonder that 40% of Americans couldn’t afford an unexpected $400 expense.

The High Costs of Credit

While credit can expand your financial possibilities in the short term, it’s not cheap. Seven in ten credit card borrowers don’t pay the full balance on their accounts each month; last year alone, those poor habits translated to a staggering $113 billion in credit card interest and fees.

And if you think it’s a good time to be a credit card company, the future looks even more lucrative. Since only 2013, overall revolving debt has shot up 20%, and the amount the industry collects in fees and interest has increased by 50%.

Debt is risky, and as more households take on more debt, they’ve also had to face the consequences of risk gone bad. Bankruptcies, which were relatively rare in the pre-credit card era, began to increase in the 1960s, and shot up 400% between 1980 and 2006. The Great Recession put a temporary brake on bankruptcies, but in a historic context, the bankruptcy rate remains extremely high.

Debt Means Different Things in Different Regions

It’s especially interesting to look at how unevenly credit’s impacts are being felt across the U.S. debt is debt, but the amount of money a person owes is more meaningful when it’s understood as a percentage of their income; after all, a $30,000 debt doesn’t have the same weight to a millionaire that it does to someone who makes $30,000 a year.

In Hawaii, the average debt was only 14% of the median household income, while in Mississippi, it’s more than double that, at 31%. That means the same debt will hurt twice as much in Mississippi than it would in Hawaii.

Which Came First, Credit or Debt?

While this present era of financial irresponsibility began with the introduction of easy credit, there’s more at work here. Bad consumer behavior isn’t caused by access to credit as much as it’s enabled by poor financial judgment. One component of the Clever study was a financial literacy survey of 1,000 consumers, and the findings were striking. Overall, respondents demonstrated a poor to mediocre grasp of financial basics. But the most interesting reveal was when the data was broken down by generation.

Baby boomers demonstrated the most financial literacy, averaging a score of 76%, or a solid C. Millennials came in at 56%, a dismal failing grade.

Only 4 in 10 millennials were able to correctly answer the question, “what is interest?”

Twice as many boomers knew the definition. Also consider the innocuous statement, “credit cards traditionally have a lower interest rate than car loans.” Ninety-two percent of boomers knew this was false, while only 56% of millennials did. And 86% of boomers knew that checking your own credit didn’t hurt your credit score, while only 58% of millennial were able to identify this as a falsehood.

The Grim Implications

In only a handful of decades, easy access to credit has become an integral driver of the economy. This might not be so worrisome if wages were on a comparable upswing. But since 2003, credit has increased by 90% while wages have increased by a measly 7%. If these curves continue to diverge, the effects will be extreme.

Compounding this dreary outlook is the fact that millennials, the least financially literate generation, are also the most financially hamstrung. Burdened by unprecedented levels of student debt, they earn less than previous generations at similar ages, and many of them are already delaying or even forgoing big financial milestones like homeownership, even as they rely more and more on debt just to make ends meet.

As more boomers retire, and millennials take their place, the economy could be in for some nasty shocks.

Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.