Consumers Now Prefer Debit Over Credit
The ongoing recession has given American consumers pause on how they are using their credit. For several years, American consumers have been following the “charge it” mentality that came naturally with credit cards. Nowadays, they’ve turned towards a “save it” mentality and are moving to debit cards instead.
Considering the high unemployment rate and the weak economy, consumers are quite worried about overspending. Couple that with worries over the increasing interest rates and fees of credit cards and it is easy to see why consumers are now swapping their credit cards for debit cards.
Nilson Report publisher David Robertson said, “People are managing their money in a different way. You clearly have a situation where those people who have jobs are exhibiting recession anxiety and they are making more debit transactions”. The Nilson Report follows trends in the credit card industry.
More and more American consumers are moving towards debit cards and away from credit cards. Many are just keeping their credit cards as a fall back or because they have balances to pay off. They see credit card spending as risky and, because see spending cash as unsafe, they see debit cards as the perfect alternative.
Trish Preston is the head of the U.S. Debit for MasterCard and she says that the changing trend of credit and debit tells the story of how the current recession has changed the nature of consumer spending. She said, “Think about what’s happening in the economy. Appliances, furniture, jewelry: those are very sensitive to the economy, and those have generally been credit spending categories”.
Debit cards are more commonly used for daily purchases of necessities including gasoline and groceries and it is these kinds of expenditures that are happening more now, Preston said.
According to the Federal Reserve, revolving credit which is made up primarily of credit cards, have lowered by $6.1 billion in July. This translates to 8.1% annualized. Debit card usage, which has seen a steady growth in the past years, saw a massive surge during the economic recession.
This spring, credit card issuer Visa announced that Visa debit card spending surpassed credit card spending in the United States. The volume of debit payment in 2009 was at $206 billion, compared to a credit spending volume of $203 billion. MasterCard also released a report saying that the volume of their debit card purchases increased by 4.1$ for the first half of this year. This amounts to $160 billion. Credit and charge card spending meanwhile dropped to 14.8%, translating to $233 billion.
