09.02.09
By Gerri Detweiler
Is that good or bad? Mercator Advisory Group’s recent report,
The Consumers and Their Credit Cards: A Cooling Relationship Threatens Post-Recession Outlook describes how consumers are cutting back on their use of credit. Specifically, the report found that:
- In today's recessionary environment, declining access to card-based credit is widespread, but not all actions are negative. Of the 27 percent of respondents noting they applied for new credit cards, about 6 in 10 were successful.
- Among those who experienced an adverse outcome (credit line reduction, involuntary account closure, denied application), a net 15 percent of all respondents indicate they delayed or cancelled purchases (including vacations, major purchases, daily essentials, or small business purchases) due to reduced credit access.
- Nearly two thirds of respondents can be classified as "payment changers," indicating they have taken specific actions to reduce credit card use, including shifting their purchases to debit, prepaid and charge cards or simply using cash. Women are more likely than men to make changes in payment card use.
- When consumers take actions to reduce credit card use, a vast majority indicate those specific actions are likely to be permanent (i.e. lasting beyond the recession).
Of course, this is welcome news for financial advisors, and even some economic advisors, who have been worried about our growing reliance on consumer debt. On the other hand, it means a recovery could be much slower than hoped for, if less use of credit means less spending overall.
The big question is how long our self-imposed debt diets will last. If the economy does pick up soon, will our thrifty habits continue, or will we go on another credit binge?
Chart reprinted by permission. Copyright © 2003-2009 by Mercator Advisory Group, Inc. All Rights Reserved.
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