The holidays were fun—perhaps too much for some. As a result, some of your members may have holiday hangovers of the financial variety.
Credit union credit card balances have grown quickly of late. Overall balances are up 6.9% in the year ended October 2014, CUNA reports. If history is a good guide, full-year 2014 increases should be 8%. If so, that would represent the fourth consecutive annual increase in credit card balances and the fastest annual advance in seven years.
In 2007, credit union credit card balances grew 13.5%. That growth rate was cut in half in 2008 as the Great Recession took its toll and then bottomed out at a meager 3.1% increase in 2010. Each year since, credit union card balances have grown at increasing rates.
Credit card growth reflects strong seasonal influences. Not surprising, the holidays are responsible for the large balance increases.
Historically, on average, credit union card balances outstanding grow at an astounding annualized rate of 45% in December due to holiday purchases.
It’s likely that holiday spending increased at a healthy rate in 2014 and, by extension, significantly boosted credit card balances.
Compared with 2013 results, economic conditions broadly improved in 2014. Economic output likely increased 2.5% last year, and the economy will have added more than 2.6 million new jobs—the strongest showing in 14 years.
To an extent, these realities are at odds with the 15th annual CUNA/Consumer Federation of America Holiday Spending Survey, conducted in November 2014. It showed that 87% of consumers intended to spend about the same or less as last year, up from 80% in 2013.
The disconnect arises because what consumers say they’ll do doesn’t always correspond with what they actually do. Over time, respondents consistently say they will reduce rather than increase spending.
Actual holiday spending, however, almost never decreases. In fact, spending has increased in every year but one that we have conducted the survey. The exception was 2008, during the depths of the recession.
Thus, the absolute level of the responses reported in the survey is much less important than how the responses compare with previous years. Based on the survey results, we predict 2014 holiday spending likely increased 3% to 3.5%, versus the 3.4% increase in 2013.
While holiday spending should cause a significant jump in credit card balances, history shows most members aren’t reckless.
Although members usually “overspend” on the holidays, the data clearly shows that the big seasonal increases in card balances seen during November and December typically are paid down within three months.
The holidays and holiday expenses aren’t unexpected. Every December we celebrate. And we spend.
Now is the perfect time to urge members to establish holiday savings accounts with regular contributions. Doing so will help many avoid the dreaded holiday hangover.
MIKE SCHENKis CUNA’s vice president of economics and statistics. Contact him at 608-231-4228.