Consumer credit reliance spells bad news for business

Consumers will become increasingly reliant on credit to pay their bills in the coming months, according to Dun & Bradstreet, suggesting discretionary spending will slow even further.

The latest Dun & Bradstreet Consumer Credit Expectations Survey is based on the responses of 1,216 respondents aged 18-64.

Conducted nationwide, the survey is focused on June quarter savings, credit usage, spending and debt performance expectations.

According to the survey, 41% of Australian households with children will be forced to rely on a credit card to cover living expenses, up 2% since late last year.

The survey also found more than a third of families will struggle to manage existing debt levels. Similarly, nearly half (46%) of all low-income households expect difficulty managing their debt.

Dun & Bradstreet chief executive Gareth Jones says the results indicate a worrying cycle of debt accumulation and dependency among struggling consumers, which is bad news for retailers.

“We are seeing the least solvent consumers accumulating unmanageable levels of debt, while those best able to meet credit commitments are avoiding spending altogether,” Jones says.

And according to Jones, the situation could continue.

“When consumers are increasingly forced to accumulate debt they are unable to manage… this has the potential to quickly become a vicious cycle,” he says.

More than 40% of respondents aged 18-34 said they would use a credit card to pay for otherwise unaffordable expenses in the coming quarter, compared to 33% of those in the 50-64 age bracket.

Similarly, Australians aged 18-34 were most likely (35%) to say they intend to make a major purchase, compared with people aged 35-49 (23%) and people aged 50-64 (27%).

Of those that intend to make a major purchase, 40% of 18-34 year-olds would use a credit card to complete the transaction, and 31% would use a personal loan.

Those aged 50-64 are the least likely (30%) to expect difficulties meeting credit commitments, while 38% of those aged 18-34 expect this to be an issue in the June quarter.

If short of cash in the June quarter, 18% of those aged 25-34 would skip a mortgage repayment, 13% of those aged 35-49 a television bill and 8% of those aged 50-64 a credit card bill.

Alarmingly, 52% of those aged 25-34 anticipate a negative impact on household finances if interest rates were to rise in the coming months.

The report comes on the back of the Commonwealth Bank Business Sales Indicator, which rose 0.7% in February.

However, CBA’s Mike Comyn said consumers are “spooked easily”, so any negative economic news “has the ability to change things very quickly”.