Credit cards come second in holiday spending race

New Zealand consumers will be tucking their credit cards away in the lead up to the Christmas holidays.

According to a recent Dun & Bradstreet survey of ‘Consumer Credit Expectations’, almost half of all consumers will be relying on their own savings to cover any expenses over Christmas.

General manager of Dun & Bradstreet, John Scott says the conservative attitude surrounding credit card spending is unusual around the Christmas period.

“Kiwi consumers have had a turbulent year and it shows in their approach to spending this Christmas. In particular, there is an unusually conservative attitude to new lines of credit or limit increases heading into the holidays.”

It’s also been found that only 5% of all consumers planned to apply for a new credit card, with only 9% of Kiwi consumers planning to apply for credit limit increases leading up to the holidays.

The survey found that younger consumers were the most likely to rely on credit for purchases, seeing more than two-thirds of 18-19 year-olds expecting to pay using credit over Christmas.

This swings well with survey findings that many consumers will avoid spending all together, reporting that around three quarters of consumers are said to avoid any big purchase plans for the next three months. 72% of those who are planning a major purchase are said to use their personal savings instead of credit card spending.

“This does not bode well for key sectors, particularly retail, which as already experienced soft demand this year,” said Mr Scott.

“Of particular concern is the fact that potentially exposed demographics, including younger consumers, low income households and families with children are continuing to access credit despite the prospect of increasing financial stress.”

According to the survey, one in five low income households (<$40K p.a.) report that they will see a rise in debt levels, with one third expecting to have difficulty meeting credit commitments over Christmas. 33% of this group indicate that they will be faced with a level of difficulty in paying off credit cards, as compared to the 25% national average.

“Debt levels are becoming increasingly difficult for families to manage, particularly for low income households. Unmanageable personal debt is never just one person’s problem; it ultimately affects the economy as a whole,” Mr Scott says.

Geographically, almost 40% of Auckland and Wellington residents will be using their credit cards to pay for items they would not be able to afford with cash, as compared to the national average of 34%.

In contrast to this, Christchurch residents are the least likely to apply for any new financial products including new home loans and rental property loans, despite the devastation left behind by the February earthquake. Only 15% of residents in the Christchurch area anticipate difficulties in meeting credit obligations.

When observing age groups, D&B data shows that 73% of individuals aged between 30-34 years would rather pay from their savings than using their credit card (35%).

“Although the workforce-age group has exhibited potential for significant financial distress, the fact that retirees are using their mortgage money is extremely worrying and is a sign of poor financial planning,” Mr Scott says.