More Shoppers Avoiding Credit Cards.
Posted on | December 28, 2009 |
According to a recent AP article, more shoppers are wary of using credit cards this year despite the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009.
Shoppers were so loath to use credit this holiday season that they were paying with cash, debit card and even cashing in frequent flyer miles and using free financing. They attribute this change in shopping behavior to a desire on the part of recession weary Americans to stick to a budget, and avoid rising interest rates.
That’s certainly a good thing.
What’s not a good thing is an increase in the use of layaway. That’s evidence that shoppers are still buying things they can’t afford to, and are living beyond their means. Maybe this is the first step in a transition from conspicuous consumption to the new frugality, but we must wait to see if that trend will seriously take hold once the economy recovers.
Some new habits, particularly using more cash, will likely linger, with unemployment expected to remain high for several years and credit lines less generous.
Among the new alternatives to the credit card that shoppers are using are:
- PayPal - usage is up 20% in the last quarter.
- Cash
- 0% financing on store card purchases - Kmart is offering this for 6 months on purchases of $99 or more, down from $199 a year ago.
- Bill Me Later - free financing for 90 days, offered by a variety of stores. If purchases are not paid in the 90 period, there is a 20% finance charge.
Like layaway, the increased reliance on 0% financing belies a change in tactic, not a fundamental shift from consumption to frugality - shoppers are substituting store specific financing deals for credit card purchases in the hopes they can avoid the interest charge, but they are still living beyond their means.
For my part, I still use a credit card for all purchases I can, and pay off the balance every month. I treat each swipe of the card as cash, but get rewards for things I buy anyway.
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