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Consumers cautious heading into Christmas

Dun & Bradstreet

Tuesday 18th October 2011

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New Zealand consumers are putting their credit cards away in the lead up to Christmas.

According to the Dun & Bradstreet survey1 of Consumer Credit Expectations, nearly half of all consumers will use their own savings to pay for additional expenses over Christmas.

Dun & Bradstreet general manager, John Scott says it is unusual for consumers to be so reserved with credit cards during 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 in to the holidays,” Scott said.

The survey, which focuses on New Zealander’s expectations for savings, credit usage, spending and debt performance, also found that only five per cent planned to apply for a new credit card.

Likewise, only nine per cent of Kiwi consumers plan to apply for a credit limit increase

This correlates with findings that many consumers will avoid holiday spending altogether; with three quarters of consumers saying they had no plans to make a major purchase over the next three months. Of those planning a major purchase, 72 per cent said they would use their savings.

“This does not bode well for key sectors, particularly retail, which has already experienced soft demand this year. At this stage it is doubtful whether consumers will deliver as expected this Christmas.”

“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,” Scott said.

“This indicates that default risk will remain prominent for credit providers in the months ahead. It also suggests that certain demographics could find themselves in further trouble early next year.”

One in five low income households (<$40K p.a.) report their debt levels will rise leading up to Christmas, and over one third expect they will have difficulty meeting credit commitments over Christmas.

More than a third of families with children anticipate having trouble meeting their credit obligations over the next three months compared with just over 20 per cent of households without children.

The survey also found younger Kiwis were the most likely to rely on credit for purchases, with more than two-thirds of 18-19 year-olds expecting to use credit over Christmas.

“Younger consumers find credit-related debt easy to accumulate and very hard to get rid of. We often see younger people with debt well above manageable levels and of course bad debt can haunt you long after the purchase is made and forgotten,” Scott said.

“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,” Scott said.

“While consumers appear to be shying away from new credit-related debt as Christmas approaches, many are struggling to manage existing debt levels, in particular the most vulnerable households such as those with children or a low combined income.”

Just two per cent of those surveyed would prioritise their mobile phone bill over other commitments if they found themselves short of cash over the holidays. The vast majority would prefer to repay their mortgage (30%) or credit card (17%).

Scott said it is unsurprising that phone bills are one of the first to be delayed when times are tight, but this raises significant issues under the new positive credit reporting system to be introduced in New Zealand next year.

“Consumers need to understand that mobile and home phone payment behaviours will start having an impact on their credit rating under the new system. Consumers can no longer afford to be blasé about their phone bill.”

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