InvestSMART

Paul's Insights: Australians kick the card habit

After decades of developing a credit card habit, Australians are ditching cards by the hundreds of thousands.
By · 26 Aug 2019
By ·
26 Aug 2019
comments Comments

Reserve Bank figures show the level of national credit card debt accruing interest has slid to the lowest in over a decade.

We collectively owe $29.5 billion on credit cards – a figure not seen since December 2007.

What’s especially remarkable is that the number of personal credit card accounts has fallen 2.03% year-on-year. There are now 301,749 fewer active accounts than there were in June 2018.

According to research group RateCity, it’s a sign Australians are starting to wean themselves off high interest debt.

For me, these figures tell several stories: Some good, some not so good.

The first is that Australians are realising credit cards are a costly way to fund purchases unless the balance is paid off before interest charges apply.

And, as RateCity notes, banks are tightening things up at their end. Card issuers are now assessing a person’s ability to repay their entire credit card limit within three years. As a result, credit limits have fallen to the lowest level in more than 3.5 years as new customers are being forced to cut back.

So far, so good. The downside is that other payment options have filled the gap.

Buy-now-pay-later services like Afterpay and zipPay have skyrocketed in popularity. In 2017/18 two million Australians used buy-now-pay-later options, up from 400,000 two years earlier.

The big concern is that buy-now-pay-later is especially popular among younger Australians. Three out of five users are aged under 34.

These arrangements may not charge regular interest in the way credit cards do, but they’re not without drawbacks.

Our money watchdog ASIC found one in six users had either become overdrawn, delayed bill payments or borrowed additional money because of a buy-now-pay-later arrangement.  Most consumers admit these arrangements allow them to spend more than they normally would.

Part of the problem is that buy-now-pay-later is not subject to the National Credit Act. Providers don’t have to meet responsible lending obligations, so it’s largely left to consumers to regulate their own spending, and for some people the temptation to overspend is hard to resist.

Taking control of your money is a key step in achieving financial security, and the only way to grow wealth for tomorrow is by spending less than you earn today. It may be old-fashioned, but regarding the balance of your everyday account as a limit for personal spending still makes a lot of sense.

 

Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

 

Google News
Follow us on Google News
Go to Google News, then click "Follow" button to add us.
Share this article and show your support
Free Membership
Free Membership
Paul Clitheroe
Paul Clitheroe
Keep on reading more articles from Paul Clitheroe. See more articles
Join the conversation
Join the conversation...
There are comments posted so far. Join the conversation, please login or Sign up.

Frequently Asked Questions about this Article…

Credit card debt in Australia has decreased significantly due to a combination of factors, including Australians becoming more aware of the high costs associated with credit card interest and banks tightening their lending criteria. This has led to a reduction in the number of active credit card accounts and lower credit limits.

Banks have become more stringent in their lending practices by assessing a person's ability to repay their entire credit card limit within three years. This has resulted in lower credit limits and fewer new credit card accounts being opened.

Many Australians are turning to buy-now-pay-later services like Afterpay and zipPay as alternatives to credit cards. These services have grown in popularity, especially among younger Australians, as they offer a way to make purchases without the immediate burden of interest charges.

While buy-now-pay-later services don't charge regular interest like credit cards, they can lead to financial issues such as overdrafts, delayed bill payments, or the need to borrow additional money. These services are not regulated under the National Credit Act, which means consumers must self-regulate their spending.

Buy-now-pay-later services are popular among younger Australians because they offer a convenient way to make purchases without upfront costs. However, this convenience can lead to overspending, as many users admit to spending more than they normally would.

To take control of their finances, Australians should focus on spending less than they earn and consider their everyday account balance as a limit for personal spending. This approach helps in achieving financial security and growing wealth over time.

Financial literacy is crucial in managing personal finances as it empowers individuals to make informed decisions about spending, saving, and investing. Understanding the costs and benefits of different financial products, like credit cards and buy-now-pay-later services, is essential for maintaining financial health.

Paul Clitheroe is the Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board, and chief commentator for Money Magazine. He is a prominent figure in financial education, advocating for informed financial decision-making and responsible spending habits.