Consumer prudent about credit card use for Xmas

Auckland Residents Celebrate Festive Period With Lights Displays

Consumers remain wary about using their credits cards for the Christmas period, preferring instead to use cash or debit cards, an economist says.

CommSec economist Savanth Sebastian said consumers were not prepared to spend beyond their means and take on additional debt, even with Christmas approaching.

“They are happy to use cash, they are happy to use debit cards, they certainly do not want to use credit cards,” Mr Sebastian said.

“It will be a trend that will remain in force until next year.

Average credit card balances fell $4 to $3,141 in October, Reserve Bank of Australia (RBA) data released this week showed.

It also found that the annual growth in credit card usage rose one per cent in October, while purchases by debit cards and electronic funds transfer point-of-sale (EFTPOS) were 16 per cent higher.

Mr Sebastian said the economy would need to recover to the strong growth of 2006/07 before consumers started to take on extra debt.

Mastercard Papers Australia said the RBA data demonstrated local cardholders were curbing their use of credit and had lowered their overall balances.

The data showed the average outstanding balance attracting interest on a credit card fell for the fourth straight month in October.

“We continue to see sharp falls in balances, underlining the responsible nature of credit usage in this market,” the card issuer said in an investor note.

Despite their prudence about taking on extra debt, Australians were more confident about the economy than 12 months ago, Mr Sebastian said.

This was reflected in the Westpac-Melbourne Institute consumer sentiment index for December, released this week, which was 23.7 per cent higher than 12 months before.

“Consumers are certainly going to enjoy a better festive season than last year, and also the retailers are going to probably see a pretty decent return compared to last year,” Mr Sebastian said.

He said consumers required a period of economic exuberance before they were willing to increase their personal debt.

“That will come when the economy gains traction, when commodity prices rise and when incomes in Australia start increasing,” he said.

“That won’t be anytime soon, that is likely to be in the second half of 2010.”

The number of cash advances on credit cards in October was 18.6 per cent lower than a year ago, while it have been falling consistently in annual terms for 30 months, Mr Sebastian said.

“We are not intending to take cash advances where you get those higher interest rates charged,” he said.


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