Consumer borrowing remains sluggish

Either Australians are slowly getting smarter about using expensive credit cards or consumers lack confidence and are therefore wary of debt. One person’s greater intelligence is another’s negative economic indicator.

The latest detailed credit and debit card data from the Reserve Bank shows Australians’ love of credit cards continues to wane while debit card usage continues to rise. Yes, price signals can work.

Contactless technology has made it easier to use credit cards for small transactions. Photo: Glenn Hunt

We’re still married to plastic though and a great many of us remain mugs, failing to manage the easy credit and therefore paying extremely high interest.

After two months of falls, the number of credit and charge card accounts was effectively flat in May. There were still 15.45 million of them, but the growth over the past year has been just 0.77 per cent.

Debit card account growth also was quiet in May, but grew over the year by 5 per cent to 38.49 million.

We’re using the credit cards we have more, but getting better at paying them off.

We made 166.53 million purchases worth $22.9 billion on credit and charge cards in May, compared with 160.92 million purchases worth $22.55 billion a year before.

Over the same period, debit card transactions grew from 279.7 million worth $15.33 billion to 308.7 million worth $16.59 billion.

Total credit and charge card balances grew from $49.62 billion a year ago to $49.99 billion, but encouragingly, balances accruing interest fell from $35.35 billion to $34.43 billion.

That’s still a powerful mountain of debt frequently being charged at interest rates in the high teens or more.

Staying in control

Given the high rates, the inability to mostly pay off credit card balances in full is a sign of an individual not really being in control of their finances.

When the balances keep rising and regularly only the minimum amount is paid off, the individual is financially out of control.

The lessons learned from our personal debt binge in the 'noughties' show through now in a household savings ratio of nearly 10 per cent and the slight taming of credit card debt.

The peak in balances accruing interest was $37.1 billion in April, 2012.

Either that, or it indicates consumers lack confidence. That’s the way CommSec economist Craig James views the card data:

“While businesses are borrowing, investing and employing again, consumers are reluctant to take on debt. This is no more apparent than in the credit card figures released each month by the Reserve Bank,” he said.

Americans, with a severe recession behind them, worse unemployment and slower economic growth, are also becoming more wary of credit card debt. 

The Washington Post reports the percentage of cardholders who paid off their balances in full in the fourth quarter of 2013 was 29 per cent – the highest such figure on record.

Too bad about the other 71 per cent.