“When it comes to credit cards and student loans, some people seriously underestimate their debt,” says a recent article at The Atlantic.
Consumers have great understanding of their debt obligations when it comes to car loans, mortgages, and home equity lines of credit.
For credit cards and student loans, however, “Americans’ perceptions was a bit rosier than the figures provided by their debtors.”
With regard to credit cards, households fall 40% short on their estimates of what was owed—estimated around $440 billion in debt compared to the real figure, $731 billion.
Even if consumer survey respondents intentionally provided incorrect debt figures, the difference between amount owed and actual debt “might hint at a bigger issue: lack of debt awareness.”
This week, an examination of consumer spending trends and awareness of selected issues surrounding credit cards.
Are your members in a credit card conundrum?
‘You don’t realize how much you use your credit card not even to buy things. It’s a card you get so you can navigate society.’ --Adam Carolla, radio personality
The payment method of choice for consumers is debit or credit cards for an “overwhelming majority,” according to the New York Post. For in-person payments, 42% use debit, 38% pay by credit, 17% pay with cash and 3% will write a check.
When making online payments, 50% use credit cards, 30% debit, and 20% PayPal or something similar.
Many of those who use credit cards do so because they like to take advantage of rewards offerings.
Indeed, “Attractive Rewards and Benefits Drive Credit Card Selection, Satisfaction and Spend,” says a J.D. Power press release on its “2015 U.S. Credit Card Satisfaction Study.”
Fifty-two percent of card users chose their card for a better reward programs, and 24% found better benefits.
Card users who believe they have attractive rewards will spend more each month on the card than those who don’t find their rewards as attractive: $1,132 vs. $744 monthly, on average.
Those card users finding “an outstanding customer experience” exhibit loyalty and will recommend their card to others.
“Gen X and Baby Boomers Rely on Credit Cards More than Millennials,” says LendingTree. Older generations are more dependent on debt than their younger counterparts, and are also “more cash-strapped.”
Only 61.34% of millennials surveyed own one or more credit cards, and this is the generation with the lowest rate of card ownership. Gen Xers own cards at a rate of 79.24%, and 88.70% of boomers have one card or more.
The silent generation—those born 1925-1945—have a 96.55% rate of ownership of at least one card.
Millennials may still feel effects from the financial crisis while “Older Americans are more reliant on credit cards to maintain their monthly expenses and cash flows when compared to younger generations,” notes Doug Lebda, LendingTree founder and CEO. “It will be interesting to see how this trend develops with the emergence and adoption of new payment methods.”
A mere 28.84% of millennials felt they needed a card, and 25.29% said they did not need a card.
Further, millennials who did use cards paid them off every month at a rate of 53.49%, compared to 52.65% of boomers and 42.12% of Gen Xers.
Meanwhile, today’s college students “have significantly fewer credit card options to choose from,” notes Nasdaq.com, the result of credit card law reforms.
Still, cards they can choose have better terms. The average interest rate has dropped to 13.4%, down from the 16% rate before new regulations took hold.
And, student card rates are two percentage points less than the national average.
Student cards might also offer additional benefits such as cash back for good grades or credit literacy rewards.
“Student credit cards may now be loss leaders. The banks that are offering these cards are trying to build a long-term relationship with an educated consumer,” notes Rohit Chopra, senior fellow at the Center for American Progress and former student loans ombudsman at the Consumer Financial Protection Bureau.
‘I haven’t reported my missing credit card to the police because whoever stole it is spending less than my wife.’ --Ilie Nastase, professional tennis player
“Half of U.S. Consumers Don’t Have, and Don’t Understand, Chip Cards,” says Computerworld. Not even half of consumers have thus far received a chip credit or debit card, notes the article. And 56% don’t understand what a chip card is.
Fifty-one percent of survey participants thought a chip card would give them additional security. Fifty-nine percent of men had this inclination, compared to 41% of women.
In light of the apparent lack of awareness surrounding chip cards, a “Survey Finds Consumers Want More Credit Cards Protection,” says Innovative Retail Technologies. Sixty-two percent say today’s cards do not offer adequate protection in fraud prevention or data protection.
Sixty-two percent of survey participants want chip-and-PIN cards rather than chip and signature cards. Sixty-three percent say chip-and-PIN cards provide greater security.
Meanwhile, “Credit Card Fraud Protection is Confusing, Even for FBI,” notes The Detroit News. Most new chip cards do not require PINs and the FBI had previously advised consumers use PINs with new chip cards rather than merely signing receipts.
The FBI later revised its comments to indicate consumers can still swipe cards, but that chip cards offer greater security.
Federal Reserve analysis shows fraud is seven times more prevalent in signature and prepaid transactions than in PIN payments.
It seems potential exists for credit card conundrums when confusion abounds for consumers regarding spending habits, debt levels, and lack of awareness surrounding security features of cards.
What might you do to help members better understand issues surrounding credit cards?
Perhaps the sooner information is shared, the better. Per actor Christopher Parker, “Procrastination is like a credit card: it’s a lot of fun until you get the bill.”