Australian Consumers Becoming More Credit Card Savvy

It took a gut-wrenching global financial crisis to do it, but Australian consumers are clearly using debt much more sensibly than they were in the halcyon days before the GFC. This is particularly apparent in how we use our credit cards.

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Monthly Average Wages as a % of Monthly Credit Card Balance

It is particularly positive for us to discover that Australian's are becoming more credit savvy.

(PRWEB) March 19, 2010

At first sight, it might not look as if we are using them wisely. For example, the headlines will tell you that Australians’ spending on credit cards hit a record $21.1 billion in December 2009, up 5.6 per cent on the previous year.

Credit Card Finder analysed Reserve Bank statistics finding that the average outstanding balance on credit cards stands at a record $3,250.60, up 3.3 per cent on a year ago, and the strongest rate of growth in 13 months.

But while Australian consumers left more outstanding debt on their credit cards in December, they are more likely to pay off credit card debt without incurring interest charges or use debit cards instead, says Craig James, chief economist at CommSec.

“Australians are being increasingly savvy with their finances. Cardholders are using credit cards more often but paying off before the due date. And consumers are avoiding bank fees, preferring to get cash out on their debit cards with retailers,” says James.

Of credit cards attracting interest charges, the average outstanding balance rose by just $7.40 to $2,303.00, a rise of less than one-third of 1 per cent.

The average balance accruing interest is 1.4 per cent higher than a year ago. The smoothed (rolling annual average) measure shows 1.3 per cent growth in the average balance – the slowest growth on record.

The number of purchases made on credit cards rose by 15.2 per cent in December, to stand 4.1 per cent higher than a year ago. On average, the RBA statistics show that Australian consumers used their credit cards 10.6 times on average in December, slightly less than the record in December 2004.

But the key statistic that points to wiser card use is the growth in debit cards, says James.

“The new era of consumer conservatism continues. Aussie consumers no longer blindly put purchases on credit cards – they prefer to use their own funds instead,” he says.

On average each Australian used their debit cards a record 6.4 times in December. The value of purchases made on debit cards (excluding cash-out transactions) totalled a record $11.8 billion in December, up 6.9 per cent on a year ago. The number of debit card purchases was up by 11.1 per cent on a year ago.

Cash out-only transactions made with debit cards in December were up 7.3 per cent on a year ago. In contrast, the number of credit card cash advances fell by 2.7 per cent in November, and was down by 15.3 per cent on a

year earlier. Credit card advances have been consistently falling in annual terms for 32 months.

Payments system analyst Mike Ebstein, head of MWE Consulting, says the shift from credit and charge cards to debit has been “unmistakable” over the last five years.

“From a minority position five years ago, debit now accounts for almost 58 per cent of the number of purchases made with a payment card in this country and nearly 37 per cent of the value. However, it does appear that this move to debit may be starting to lose the momentum exhibited particularly during the last two years,” says Ebstein.

On a per account basis, the number of purchases on debit cards has risen by more than 50 per cent during the last five years, with growth on credit and charge having been just 3 per cent.

“Annual purchases per debit card remain at around 60 per cent of the level of a credit and charge card, but a continuation of the present trend could well see that position reversed within the next decade,” says Ebstein.

Further evidence of a trend of more judicious use of credit cards can be seen in the accompanying Reserve Bank chart showing average national monthly wages as a percentage of credit card debt.

This shows credit card debt as a proportion of wages surging from 30 per cent in 1994 to 65 per cent in 2007, before the trend turned tail. Despite a major shift post-2001, when debt rose sharply, credit card debt levels as a percentage of wages has declined to 60 per cent, as Australians have reined back their credit card use.

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