Australians are set to tighten the purse strings in the lead up to Christmas, with non-essential spending expected to fall as consumer concern about financial security rises.
These findings are from illion’s latest Consumer Credit Expectations Survey, which measures expectations for savings, credit usage, spending and debt performance during the December quarter 2012. The survey found that half of Australia’s households are less likely to spend on non-essentials in the coming months, while one in three (29%) are more inclined to save than they were 12 months ago. The survey also found that 56 per cent of Australians are concerned about their personal financial situation.
Credit usage is also expected to fall in the coming months, with 37 per cent of households less likely to use a credit card to pay for non-essential items over Christmas compared to the same period last year, while just 16 per cent plan to apply for a new credit product* or limit increase.
The results come as the Reserve Bank of Australia (RBA) has lowered interest rates in a response to the risk of slower economic growth. The RBA has noted the move by households to deleverage and increase savings as a buffer against economic instability, including the risk of rising unemployment. The bank is now predicting more moderate and sustainable credit growth off the back of this trend in consumer behaviour.
illion CEO, Gareth Jones, says the conservative consumer outlook could have a significant negative impact on businesses reliant on the Christmas rush.
"An increasing number of Australians are concerned about their financial security and this is weighing heavily on their plans for the Christmas period," Mr Jones said.
"Prioritising saving over non-essential spending is a positive for the balance sheets of Australian households and the Reserve Bank is certainly encouraging this behaviour, in light of uncertain employment conditions. However, it could have detrimental flow on effects for businesses that are looking to Christmas to drive an uplift in sales."
Older Australians are the most conservative in their approach to holiday spending. Fifty-three per cent of 50-64 year-olds less inclined to spend on non-essentials than 12 months ago, while just six per cent plan to access new credit over Christmas. A similar trend is evident for 35- 49 year-olds, with 51 per cent reluctant to spend, and just 13 per cent planning to access new credit or increase their limit.
However, while consumers are planning to avoid non-essential spending and non-essential credit usage during the Christmas period, a significant proportion will need to rely on existing lines of credit to cover the cost of living.
Forty per cent of 35-49 year olds will use credit to cover expenses they couldn’t otherwise afford, up from 35 per cent during the December quarter 2011. In addition, 60 per cent of this demographic are expressing concern over their financial situation and one in three (35%) would last no longer than one month on their current savings without full-time employment.
The figures are slightly lower for older Australians (50-64 years), with one in four anticipating a need to use credit to cover expenses, 60 per cent concerned about their financial situation and 28 per cent only able to get by for up to one month using their current savings.
Concurrently, ITSA data reveals personal bankruptcies among older Australians have been on the rise since 2003. Personal bankruptcy among 50-59 year-olds and those aged 60+ rose six percentage points during this time, to 21 per cent and 13 per cent respectively.
The low level of consumer sentiment is in stark contrast with the most recent illion National Business Expectations Survey, revealing a buoyant outlook for retailers over the Christmas period. The disparity highlights that the sales outcome for retailers may be below expectations.
"There is a distinct disparity between the spending plans of Australian households as Christmas approaches and the optimistic outlook of the retail industry," Mr Jones said.
"If households tighten the purse strings as they are suggesting, it is likely we will see lower than expected retail sales growth over the remaining months of the year."
ABS data revealed a brief resurgence in spending around May this year, figures have since returned to lower levels recorded earlier in 2012.
According to Stephen Koukoulas, illion’s Economic Advisor, despite interest rates falling quite sharply over the past year, the bulk of consumers are reluctant to spend on non-essential items.
"The results suggest that something other than interest rates is dampening consumers’ willingness to spend. Among those negative factors could be a stalling in employment growth and weak asset price growth for housing and the share market. Consumers are simply not all that confident at the moment," said Mr Koukoulas.
"With growth in consumer spending looking to be moderate at best as the year draws to a close, there will be additional pressure on the RBA to further lower interest rates in the months ahead."