Beating Addiction
Credit cards
Credit cards are one of the most expensive ways to borrow money. They incur very high interest rates if the balance is not paid off within a certain time limit, with rates more than twice as expensive as a home loan. Yet credit card use is extremely popular because they are easy to use, offer various rewards and allow users to defer payment. Unfortunately when a statement arrives the cardholder may not be able to achieve the full repayment and make only the minimum payment. Interest on the principal begins to mount.
As Elizabeth Terry, a financial counsellor with Wesley Mission warns:
“Credit providers need to tell potential customers that minimum payments will not substantially reduce the debt and that interest on the debt is charged daily, although the annual interest rate is normally highlighted in direct marketing material and on statements. “
People applying for a credit card over the phone should be warned by call centre operators and all marketing material should have greater and more prominent information about how interest is calculated — daily!”23
Only one in four credit card holders always pay off the balance by the due date. A decade ago the average credit card debt was $794. Today the average owed on Australia’s 11.3 million credit cards is $2481.24
Credit card limits, determining the total amount of cash that cardholders can access have also surged, rising 13% over the last decade to a record $75.36 billion.25
Households have been spending more than they have been earning for the past two years. Figures from the Australian Bureau of Statistics show that in the September quarter last year households spent about $3.2 billion more than their disposable incomes.
Total household debt is now equivalent to about 150% of household earnings, up from
- 135% in 2003 and;
- 105% in 1995.20
Research commissioned by BankWest found that 1.5 million Australians have a current personal debt of more than $5000, which includes credit cards or personal loans but excludes mortgages.
The same research found that 60% of those interviewed who believed that paying the debt off was a priority could not afford to do so and were putting it off to a later date.16
Some 70% of respondents hold at least one credit card27 and 30% have at least two. People aged over 40 have the highest number of credit cards.
Men are more likely to hold multiple cards (59% with 4 and 73% with more than 5).
Sydney is the credit card capital of Australia, with a higher percentage of two or more credit cards than any other city or region: 32% of Australians with five or more credit cards live in Sydney, compared with 13% in Melbourne.
This may be because Sydney residents have less disposable income and therefore are more likely to use credit cards.28
A survey by Liberty Financial found that 68% used their credit cards to pay for the bulk of their Christmas purchases, 28% said they had struggled to pay off their credit card debt after the previous Christmas and 7% said they still had not paid it off.24
Store cards are among the most expensive forms of credit with interest rates as high as 27.5%.29
During the past 20 years, retailers have cashed in on the credit boom with many of the larger stores introducing cards.
Store cards encourage repeated visits to the store and customers holding them return more times than those who do not.
Binge spending
Compulsive shopping or oniomania is commonly perceived as an “acceptable” addiction compared to other addictions such as alcoholism, compulsive gambling and drug addiction.
Psychologists believe that shopping provides a consumer with an exciting adrenaline rush only to later experience emotional lows until their next purchase.
Compulsive shopping does not discriminate, most documented cases are women, although men are not immune from the phenomena.
Experts believe that compulsive shoppers have an impulsive, subconscious pattern of chronic purchasing to help them deal with negative aspects of their lives or low self esteem.
Clever marketing, a dominant consumer culture, easy finance and credit give purchase to the idea that everyone can have a conspicuous lifestyle.30
