Twenty eight percent of households concerned about their Christmas spending
11 February, 2010
Kiwis continue to face financial difficulties despite the economic recovery, with three in ten (29 percent) expecting they will need to use their credit card to pay for otherwise unaffordable expenses in the coming months and 28 percent concerned about their expenditure over Christmas.
These findings are from Dun & Bradstreet's Consumer Credit Expectations Survey, which focused on New Zealanders' expectations for savings, credit usage, spending and debt performance over the March 2010 quarter. The survey found that certain demographics (18-34 and 35-49 year olds and families with children) are demonstrating signs of financial stress.
The survey reveals that four in ten (40 percent) young people expect they will need to use their credit card to pay for otherwise unaffordable expenses during the March quarter 2010. This compares to 33 percent and 19 percent respectively for those aged 35-49 and 50+. Furthermore, this marks an increase of six percentage points for those in the youngest age bracket since the previous survey (which examined expectations for the September quarter 2009).
New Zealanders turning to credit cards (by age)
A high percentage of families with children are also indicating a need to turn to credit in the months ahead. Seventy one percent of families with five children expect they will be forced to use their credit card for otherwise unaffordable expenses - a figure which is 45 percentage points higher than families with no dependents. Both the younger age group and families with children have a significantly higher percentage indicating a need to turn to credit in the months ahead compared to the national average (29 percent).
According to John Scott, D&B New Zealand General Manager, the number of people expecting a need to turn to credit in the months ahead is not surprising despite a local economy that looks to be in a recovery phase.
"The annual Christmas credit splurge traditionally results in a significant spike in consumers struggling with their finances in the New Year," said Mr Scott.
"Given the pressure that the global credit crisis placed on families' finances over the previous 12-24 months, it's not surprising to see that certain demographics are now struggling under the weight of their spending.
"However, this trend is cause for some concern. The Reserve Bank is expected to move rates away from the emergency lows seen during the height of the crisis throughout 2010 and the banks are likely to pass these costs on to consumers.
"Further increases in the cost of credit for those groups already under pressure could trigger an irreversible spiral into serious debt troubles."
The two groups showing signs of stress (younger people and families with children) also demonstrate the highest levels of concern about the amount of money spent over the Christmas period.
Three in ten (29 percent) 18-34 year olds and 33 percent of those aged 35-49 indicated they are concerned about the amount of money spent over Christmas. This figure falls to 21 percent for those aged 50 and over. Meanwhile, 38 percent of families with three children and 37 percent of those with five children are concerned about their Christmas spending. This compares to 24 percent for households without dependents.
The two younger groups also have a higher percentage of people expecting their debt levels to increase this quarter. Nineteen percent of New Zealanders aged 35-49 and 15 percent of those aged 18-34 have this expectation. This compares to 13 percent of people aged 50 and over. In addition, close to half (45 percent) of families with six or more children expect their debt levels to increase - this compares to 13 percent for families without dependents.
Further highlighting a potential credit trap, younger Kiwis have the highest expectations for new credit card, debit card and personal loan applications. They also have the highest percentage of people intending to apply for a limit increase on their current credit card.
"Consumers that are turning to credit to try and make ends meet should be wary of applying for new credit," said Mr Scott.
"Many consumers in this situation are not able to pay off the debt, resulting in a default being listed on their credit report. This default will stay on a report for up to seven years and can severely limit a consumer's ability to access affordable, mainstream credit in the future.
"Before consumers apply for more credit they should assess whether or not they can afford to repay the funds so they can avoid the pain of a black mark on their credit report."
However, boding well for the New Zealand economy some groups are intending to make significant purchases in the March quarter. Positively, the groups intending to spend are not the groups which are showing signs of financial stress. Twenty nine percent of those aged 50 and over intend to make a significant purchase this quarter and 83 percent of this group have indicated they will pay for their purchase using their savings. This compares to 24 (35-49) and 25 percent (18-34) intending to make a major purchase for the two younger age groups.
"New Zealanders are demonstrating significant intentions to spend in the March quarter, which bodes well for our nation's economic recovery," said Mr Scott.
"Positively, those with the greatest intent to spend are not the groups that are demonstrating signs of stress and they are indicating they will pay for their purchases with savings.
"We saw this trend towards funding purchases from savings in the previous survey when the credit crisis was still in full swing and it's not surprising to see it continue as the economy begins its recovery.
"However, we won't know if this shift is permanent until the economic recovery has progressed and people are feeling much more secure about their finances."
In a sign that families with children (particularly larger families) are tightening the reins post Christmas more than half (55 percent) of families with six or more children have decided to delay a significant purchase they had previously intended to make. This compares to just 20 percent for households without dependents.
For further information and comment please contact:
Danielle Woods
D&B Australia
Ph: +61 2 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 150 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than 1.5 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.
