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Maintaining a lifestyle on credit - Roper on Retail - consumer credit spending

The health of the U.S. economy is on consumers' minds every day. Faith in business is floundering and many are concerned about which corporation will be next to announce that its accounting is under investigation by the Securities and Exchange Commission. There is increasing talk of a "double dip" recession and what that may mean in terms of consumer spending. In the midst of this continuing economic uncertainty, one thing is clear-consumer attitude toward credit card spending has changed.

Just as consumer spending makes up a significant share of the U.S. economy, credit spending makes up a significant portion of consumer purchases. A Roper Report's in-person survey fielded in May reveals some interesting shifts in Americans' credit behavior that may indicate the true health of consumer spending. More Americans are carrying balances on their credit cards, and the frequency with which they use their cards has risen in just the past year.

In the past year, the manner in which people typically pay their credit card bills has grown more profitable for vendors. Twenty-nine percent of Americans with at least one credit card report they "always pay the entire balance," down seven percentage points since April 2001. The share that says they usually pay more than the minimum, but not the entire balance, has consequently increased five points.

These shifts have occurred across all demographic groups, but the changes have been most pronounced among the affluent. Higher-income households ($75,000-plus) remain more likely than average to report paying their credit card balances in full; yet they are 11 points less likely than they were last year to say so--32% down from 43%. This suggests consumer spending has been fueled by increasing debt, and not only in households with middle or lower incomes.

In 2001, men and women were equally likely to report paying their credit card bills in full. This year, women are less likely than men (27% versus 32%) to say they are paying off their credit card bills every month. This reinforces the general pattern we have seen over the past year that men are expressing stronger consumer confidence and personal optimism than women.

In addition, those who do own credit cards appear to be using their cards more frequently. Thirty-three percent of Americans report they have used their Visa card in the past month, up four points from 2001. This proportion rose to more than half for higher-income households, an 11-point increase since last year. Use of a Master Card is up three points from the previous year, as well.

This increased use of credit cards may be due to several factors, including the perception that credit card use is safer than cash, the convenience of using a credit card is a great plus and shopping online necessitates credit card use. Also, Americans are coming from a higher baseline in which they now consider more things necessities rather than luxuries. In other words, we need and want more. So whether we are ready to pay up front or not, consumers surprisingly are using their credit cards and not forgoing spending as they've done during past recessions.

From budgeting for food expenditures to cutting back on luxuries, Americans are not depriving themselves like we used to. In 1981, 69% said they would cut back on food expenditures, 67% would cut back on luxuries, 53% would cut back on buying things for the home, 45% would use the car less--all to cope with rising prices. When last asked in 2001, the picture was much rosier. In today's recession, 32% say they will cut back on food expenditures (37 points less than in 1981), 35% would cut back on luxury items (-32 points), 22% would cut back on buying for the home (-31 points) and a mere 8% would use the car less (-37 points).

Though consumer confidence is at recession levels and concern about dwindling 401K programs are the topic of many a cocktail conversation, consumers are contradicting this lack of confidence and maintaining spending, thanks, in part, to credit card use.

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COPYRIGHT 2002 Gale Group