Dun & Bradstreet says the Grinch may hit retailers this Xmas with 'unusually conservative attitude' among consumers to credit

Credit reporting agency Dun & Bradstreet says there's an "unusually conservative attitude" to new lines of credit and credit limit increases heading into Christmas this year meaning key sectors such as retail could be in for a tough summer.

Dun & Bradstreet's New Zealand general manager, John Scott, says the company's latest survey of Consumer Credit Expectations shows punters putting their credit cards away in the lead up to Christmas. The survey suggests almost half of all consumers will use their own savings to pay for additional expenses over Christmas.

Scott says it's unusual for consumers to be so reserved with credit cards during the Christmas period.

“Kiwi consumers have had a turbulent year and it shows in their approach to spending this Christmas. In particular, there is an unusually conservative attitude to new lines of credit or limit increases heading in to the holidays,” says Scott.

The survey, conducted online during September for the December quarter, surveyed 1000 adults aged between 18 and 70. It focused on New Zealander’s expectations for savings, credit usage, spending and debt performance, and found that only 5% planned to apply for a new credit card.

"Likewise, only nine per cent of Kiwi consumers plan to apply for a credit limit increase. This correlates with findings that many consumers will avoid holiday spending altogether; with three quarters of consumers saying they had no plans to make a major purchase over the next three months," Scott says.

And even of those planning a major purchase, 72% said they would use their savings.

“This does not bode well for key sectors, particularly retail, which has already experienced soft demand this year. At this stage it is doubtful whether consumers will deliver as expected this Christmas.”

Nonetheless, Scott says it's concerning that potentially exposed demographics, including younger consumers, low income households and families with children, continue to access credit despite the prospect of increasing financial stress.

“This indicates that default risk will remain prominent for credit providers in the months ahead. It also suggests that certain demographics could find themselves in further trouble early next year.”

The survey suggests that one in five low income households (those earning less than NZ$40,000 p.a.) report their debt levels will rise leading up to Christmas, and over one third expect they will have difficulty meeting credit commitments over Christmas. And more than one third of families with children expect to have difficulties meeting their credit obligations over the next three months compared with just over 20% of households without children.

The survey also found younger people are most likely to rely on credit for purchases, with more than two-thirds of 18-19 year-olds expecting to use credit over Christmas.

“Younger consumers find credit-related debt easy to accumulate and very hard to get rid of. We often see younger people with debt well above manageable levels and of course bad debt can haunt you long after the purchase is made and forgotten,” says Scott.

“Debt levels are becoming increasingly difficult for families to manage, particularly for low income households. Unmanageable personal debt is never just one person’s problem, it ultimately affects the economy as a whole."