Consumers more cautious about credit - even when rewarded

Most consumers in the US aren't influenced by reward programmes when choosing between credit or cash for a transaction, according to a regular survey carried out for the Cambridge Consumer Credit Index in New York. And consumers are becoming increasingly cautious about taking on new debt...

The monthly nationwide telephone poll of a thousand adults, conducted by International Communications Research (ICR), found that 76% of Americans are not swayed by the lure of accumulating frequent flyer miles or other reward points when deciding whether to use a credit card or pay by cash or cheque. The remaining 24% said that reward programmes do encourage them to use credit cards instead of paying by cash or cheque. A surprising 63% of consumers said they don't even have credit cards offering rewards points or rebates. Jordan Goodman, spokesperson for the Index, commented, "It is surprising that only a quarter of American consumers are influenced by the many frequent flyer points, hotel rewards and other rebates, since they are constantly being bombarded by offers from credit card marketers."

How debts appear
In conjunction with the Index, the Cambridge Credit Counselling Corporation is now releasing its monthly survey of people who have asked for credit counselling services during the past month. Representatives asked callers for the main reason why they needed help with their debts. Of the 1,671 people who answered, this was the order of their responses:

1. I am frustrated with high bank rates and fees (26%)
2. My income has been reduced - either from a lower salary, less overtime or redundancy (23%)
3. My lack of financial education caused me to take on too much debt (15%)
4. I got into too much debt by overspending (13%)
5. I want to improve my ability to achieve future financial goals like buying a house or saving for retirement (11%)
6. Large medical expenses forced me to take on huge debts (5%)
7. Other reasons (4%)
8. My recent divorce or widowhood forced me to take on large debts (3%)

New levels of caution
During the month of May 2002, the Cambridge Consumer Credit Index has fallen six points to 51 - the biggest drop since the index was launched in December 2001. When the index falls it means that Americans are, on the whole, paying off debt rather than increasing it. The index is a composite view of the answers to three main questions:

1. In the past month, have you taken on more debt or paid off debt?
   The index reads 56 on this question, unchanged from April. In May, 28% of Americans say they have taken on more debt, with 19% taking on a little and 9% taking on a lot more debt. Conversely, 72% have paid off debt, with 49% paying off a little and 23% paying off a lot. In April, 28% of consumers had taken on more debt while 72% had paid off debt, indicating that the number of Americans taking on debt and paying of their revolving debt did not change during the month.
2. In the next month, do you anticipate taking on more debt or paying off debt?
   The index reads 34 on this question, down two points from April. In May, 17% plan to take on more debt, with 3% planning to take on a lot and 13% planning to take on a little debt. Conversely, 83% plan to pay off debt, with 59% paying off a little and 25% paying off a lot. In April, 18% planned to take on debt and 82% planned to pay off debt.
3. In the next six months, do you expect to take on debt because you are thinking of making a major purchase such as a car, education, appliance, medical procedure, furniture or carpeting?
   The index reads 62 on this question, down 16 points from April. In May, 31% of Americans plan to take on more debt to make such purchases, with 9% taking on a lot of debt and 22% taking on a little more debt. In contrast, 69% of Americans plan to pay off debt in the next six months, with 50% expecting to pay off a little and 19% expecting to pay off a lot. In April, 39% planned to take on more debt, while 61% planned to pay off debt.

While the short-term indicators remained stable, the enormous drop in plans to take on debt over the next six months shows that consumers are becoming more cautious in their spending plans.