Consumers are saying no to debt. The average credit card limit grew by just 0.7 per cent over the past year – the slowest growth on record (17 years).
Credit card balances are stagnant. The average credit card balance fell by $87.30 to $3262.50 in January as cardholders paid off Christmas purchases. The average credit card balance is up just 0.7 per cent on a year ago – the slowest pace in 28 months.
ATM withdrawals have shrunk. In January, the number of ATM withdrawals was the smallest for any January month over the past six years.
The average purchase on a plastic card (credit or debit card) hit a record low of $89.53 in January.
What does it all mean?
The big picture is this:
- Credit card debt is falling in inflation-adjusted terms
- Credit card limits are barely moving
- The number of debit card accounts is double that of credit cards and growing at nearly four-times the rate of credit cards
- Credit card cash advances hit an 11-year low in January
- The number of purchases on debit cards is growing almost three times quicker than credit cards.
- The number of ATM withdrawals is shrinking
- The average card transaction has hit a record low of $89.53.
The average Aussie is still probably working on the assumption that we are continuing to load up on debt, but nothing could be further from the truth. The new age of consumer conservatism shows no sign of ending with debt shunned and purchases much more likely to be put on debit cards, not credit cards or even cash.
Certainly credit is available if consumers want it. The average credit card limit is over $9100 but the average outstanding debt is just over $3200.
And it’s not just credit cards that are on the outer – people don’t want to carry cash around, preferring to pay with debit cards. ATM withdrawals In January were the smallest for any January month over the past six years. And the average transaction on a credit or debit card hit record lows in January. Welcome to the New Age.
What are the implications for interest rates and investors?
It pays to stay up to date with the latest trends. Cash has been out of favour for some time as have credit cards, but the extent of the slide over the past year is staggering. Payments via mobile phones, internet banking, internet buying and ‘tap and go’ cards are just some of the trends hastening the demise of cash as the primary method for making purchases and generally exchanging value.
The new age of Consumer Conservatism shows no sign of ending. Just as cash is falling for savour, so are credit cards – consumers much prefer to be in control of their finances. Consumers are likely to maintain their preference for value shopping, keeping pressure on margins. That doesn’t mean that consumers are abandoning quality purchases – far from it – but today’s consumers want value for money and to ensure that they are getting true value.
Tracking card transactions rather than the retail trade data may be the better way of tracking spending in the community. Certainly it will gain prominence over time if current trends continue – cards versus cash; services versus traditional retailing and online versus bricks and mortar.