Credit card balances on the rise.
Credit cards
- Credit cards: The average credit card balance rose by $65.90 to $3,127.70 in November – the largest monthly increase in 12 months. However, the smoothed annual growth rate of credit card balances fell by 0.3 per cent in November.
- Debit cards preferred: Purchases made with debit cards grew by an annual rate of 15.2 per cent in November – a 4½-year high.
What does it all mean?
- Aussie consumers will be receiving their credit card statements following the Boxing Day sales any day now. But in the lead-up to the all-important Christmas trading season, credit card purchases increased by 1.8 per cent to $27.9 billion in November, up from $27.5 billion in October. Aussies owe $52.2 billion on plastic.
- While the collective debt pile is large, Aussies are still cautiously spending, preferring to live within their means. The average credit card balance was at decade lows of $3,061.90 in October.
- In a positive development for the economy, a sharp pick-up in retail spending during November saw Aussies open their wallets and purses. Consumers splashed out on the new Apple iPhone X, clothing and other household goods at the Click Frenzy, Black Friday and Cyber Monday sales. The annual growth rate of credit card balances still declined.
- And debit cards have become younger Aussies’ preferred method of paying for goods and services. Some consumers use debit cards to avoid debt and incurring higher interest charges, even though they offer rewards.
- The Reserve Bank has introduced a cap on interchange fees paid by Visa and Mastercard to the banks, reducing the generosity of credit card loyalty schemes. According to Mozo, customers need to spend on average $20,000 to earn a $100 gift voucher.
What do the figures show?
Credit & debit card lending:
- The average credit card balance rose by $65.90 to $3,127.70 in November – the largest monthly increase in 12 months. In smoothed terms (12 month average) the average balance was down by 0.7 per cent.
- Of credit cards attracting interest charges, the average outstanding balance rose by $6.10 in November to $1,897.20. The average balance accruing interest was down by 1.9 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 1.8 per cent on a year ago.
- The average credit card limit rose by $18.40 to $9,143.20 in November to be up 0.8 per cent over the year.
- Usage of credit card limits stood at 34.2 per cent in November – the highest level in 5 months.
- The number of credit card accounts stood at 16,690,000 in November, up by 0.2 per cent on a year ago – following the first annual decline in the 23-year history in October.
What is the importance of the economic data?
- The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
What are the implications for interest rates and investors?
- Credit card debt remains near decade lows, despite the small pick-up in balances in November.
- Generation Y is driving a change in card preferences with debit cards preferred over credit cards due to continued wariness of debt and reluctance to carry cash.
- Retail spending increased in the lead up to the Christmas trading period. Stronger jobs growth and record low interest rates are encouraging Aussies to spend. Household consumption is expected to be a positive contributor to economic growth in the December quarter.
- CommSec expects rates to remain on hold until late 2018.
