More spending, more credit card use expected this holiday season
One of the recurring themes on this website is the encouragement of readers to use their credit cards as often as they responsibly can. There are a number of solidly incontrovertible reasons why this form of plastic is objectively better for good money managers than other payment methods -- including debit cards.
Credit cards gaining ground again
So it was cheering to see that more Americans are finally turning their backs on debit cards, and again embracing their credit cards -- especially as the Federal Reserve reckons credit card debt actually fell by 2.9 percent in the third quarter of 2013. Credit card use is good, but unmanageable debt on that plastic can be very, very bad.
The good news came on Nov. 11 in a study published by The Nilson Report. This found that, after two decades in which debit cards increased their share of transactions by volume every year compared with credit cards, that trend finally reversed in 2012. Better yet, the firm's analysts are forecasting that, by 2017, 54.72 percent of purchase volume is going to be generated from credit cards, compared with 45.28 percent from debit cards.
Using plastic this holiday season
So it looks as if credit cards will be more in evidence this holiday season, although only 29 percent of consumers plan actually to borrow to fund their seasonal purchases. That number is a finding from a different study, the 2013 Discover Annual Holiday Survey. Presumably, many of the 55 percent who told researchers they intend to pay with savings are going to put the purchases on their cards, and then pay down the balance completely when the next statement arrives.
That's a smart move: They should get all the benefits that come from using a credit card (the best fraud protection, and possibly rewards and perks, such as extended warranties) without paying a penny for the privilege. By the way, the survey also found that 40 percent of those who are going to borrow expect also to use some of the miles, points or cash back they've accumulated on their rewards credit cards to reduce their overall shopping bill.
Discover doesn't say how the remaining 16 percent, who won't be borrowing or using savings, are going to pay. Maybe they're all Scrooges or shoplifters.
How we holiday shop
Yet another recent study, the 2013 U.S. Holiday Shopping Survey Results from Accenture, reveals more about how consumers shop, and the factors that influence them when they're doing so. It's also a joy for fans of neologisms. Who knew that "showrooming" is the practice of checking out gift items in brick-and-mortar stores, and then price checking and purchasing online? Or that "webrooming" is, far from having anything to do with your and my sweeping something, the opposite: researching online, then buying in-store. Apparently 63 percent of respondents said they were somewhat or very likely to do the former this year, and 65 percent the latter.
There's mixed news for doom mongers who are convinced that a debt-fueled consumer boom is set to launch the country into another financial meltdown. When respondents were asked to choose phrases that best described their holiday season spending plans, they picked:
- Sensible: 58 percent
- Focused on the essentials and close family: 49 percent
- Thrifty: 37 percent
- Cautious: 33 percent
However, some chose "carefree," "splurge," "unrestrained" or "extravagant." Just as well, perhaps, there were many fewer of those, between 4 and 8 percent. Even so, if 8 percent of Americans are going to be carefree about their spending this quarter, you could be looking at tens of millions of people facing financial hangovers come new year.
That good news/bad news narrative continues when it comes to personal budgets for seasonal spending. An impressive 53 percent claimed they had set such a budget, with a cap on the total number of dollars they'd expend.
However, when asked whether they might overspend, 12 percent admitted they were very likely to, while another 34 percent said the eventuality was somewhat likely. With another 4 percent saying they were unsure, that's fully half of virtuous budgeteers acknowledging they're not wholly committed to restraining themselves. So very slightly over one in four Americans (half of the half who've set a budget) are saying they seriously plan to stick to their holiday spending plans -- and most of those say it's unlikely (rather than very unlikely) that they'll do so.
Be of good cheer
None of this needs be too serious. The Discover survey revealed that, on average, consumers plan to spend $1,014 this holiday season. Bust those budgets by 10 or 20 percent, and you're looking at a possible unforeseen debt of $100 or $200. Even with credit card rates as high as they are, that's unlikely to cause many sleepless nights, and probably most Americans could clear such a balance during the first quarter of next year.
This article started out celebrating the fact that many Americans are re-embracing their credit cards. And that remains the case. They (the cards) are great when you treat them like debit cards, and completely pay down your balance every month. Indeed, there's nothing wrong with using them to iron out the occasional highs and lows of dollar traffic that nearly all consumers experience at the intersections of their incomes with their expenditures.
However, if you're finding your card balances only ever increase, it could be time to observe the Stop sign. Do yourself a favor, and pay cash this holiday season.