15 July 2009

Credit being used to cover expenses  

Almost half of working New Zealanders could only last up to one month on their savings if they lost their job and twenty eight percent anticipate a need to use credit to pay for things they otherwise couldn't afford during the September 2009 quarter, indicating that local economic conditions continue to impact household budgets.

These findings are from Dun & Bradstreet's Consumer Credit Expectations Survey*, which focused on New Zealander's expectations for savings, credit usage, spending and debt performance over the September 2009 quarter. The survey found that certain demographics are being challenged by current economic conditions, with younger Kiwis (aged 18-34) and part time workers in particular demonstrating signs of financial stress.  

Fifty five percent of New Zealanders aged 18-34 indicate they could only last up to one month on current savings if they lost their job tomorrow. This compares to forty six percent for Kiwis aged 35-49 and thirty two percent for those aged fifty and over. These figures are significant and they come on the back of unemployment reaching five percent in the first quarter. Furthermore, D&B is forecasting that unemployment will reach seven percent by the end of 2009, indicating that further stress could lie ahead.

In a further sign that some demographics are facing financial pressures, thirty eight percent of New Zealand's part time workers intend to use credit to pay for things they otherwise could not afford in the September 2009 quarter. This compares to thirty percent of full time workers.

Length of time on current savings (by age)

The two younger age groups are the most likely to turn to credit in the months ahead, with thirty six percent of those between the ages of 35-49 and 34 percent of those between 18 - 34 planning to use credit to pay for items they otherwise could not afford. This compares to a relatively low 19 percent for those aged 50 and over. Furthermore, in a concerning trend, the younger groups are seventeen percentage points more likely than those aged fifty and over to apply for new credit or a credit limit increase in the September quarter.

According to John Scott, D&B New Zealand's General Manager the current economic environment is making it difficult for some New Zealanders to manage their personal budgets and consequently they are being forced to turn to credit in an attempt to manage household expenses.

"Deteriorating employment conditions are of significant concern," said Mr Scott.

"We are now seeing demographics that were previously stable financially facing difficulties managing their expenses as unemployment flows through to households. With unemployment increasing a growing number of New Zealanders will be impacted in the months ahead. This could result in a further deterioration of finances forcing some New Zealanders into deeper financial difficulty before things improve."

However some New Zealanders are planning to improve their challenging financial position, with forty three percent of 18 - 34 years olds planning to reduce their spending. This figure is higher than for older New Zealanders - thirty five percent of those aged between 35 - 49 and thirty two percent of those over fifty are planning to reduce their spending in the September quarter.

In addition, fifty six percent of Kiwis in this age group (18-34) have indicated they will delay a major purchase they had originally intended to make in the months ahead. This intent to reduce spending by certain demographics follows recent Statistics New Zealand figures which show that household spending (which makes up sixty percent of the economy) fell one and half percent in the first quarter, the most in 18 years.

Following this trend, twenty nine percent of 18-34 year olds also plan to reduce their debt levels in the September 2009 quarter.

"It is positive to see consumers who are facing financial difficulty addressing these issues and working to better manage their finances. Consumers who ignore these issues run the risk of ending up with a black mark on their credit file," said Mr Scott.

"However the latest survey also demonstrates the importance of credit providers having access to as much information as possible so they can make appropriate decisions about a consumer's ability to manage credit.

"New Zealand's negative credit reporting system provides lenders with limited data on which to base their decisions. Accordingly, credit reporting reform, which would enable credit providers to access more information, should be a priority."

In contrast to the demographics that are facing financial difficulty and seeking to rein in costs, some New Zealanders will continue to stimulate the economy by spending in the September 2009 quarter. Fifteen percent of full time workers will increase their spending in the coming months while only seven percent of Kiwis who are working part time have the same intention.

In addition twenty eight percent of the same group (full time workers) plan to make a major purchase. Positively, seventy nine percent of full time workers plan to fund their purchase via their existing savings. Credit card and interest free loans made available through the retailer were the next most popular options however these options were significantly less popular at twenty five and thirty percent respectively. 

As well, twenty two percent of New Zealanders are planning to apply for new credit in the September quarter. Full time workers, at twenty seven percent, are ten percentage points higher than part time workers on this measure. Interestingly, new debit cards are in highest demand, indicating that New Zealanders are moving to utilise savings more than credit.

"It is promising that people are using their savings to pay for major purchases and that debit cards are in highest demand for those seeking to apply for funds in the months ahead.

"This may indicate a change in behaviour with New Zealanders less willing to take on debt. However we will not know if this shift is permanent until the economy has recovered and people are feeling more secure about the state of their finances."

For further information, please contact:

Danielle Woods
D&B PR Manager
+612 8270 2926

About D&B

D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.

Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.

The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.

Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.

Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.