Home Banking & Finance U.S. consumer behavior reflects debt consciousness

U.S. consumer behavior reflects debt consciousness

With a deal in place to stave off the fiscal cliff, the nation has shifted its focus to debt. For months, Washington lawmakers danced around financial issues that have lingered years after the start of the Great Recession. Debt has been a worrisome part of the nation’s financial health and likewise has had a significant impact on Americans who suffered under its crushing weight during the financial crisis.

The result has been a discernible change in consumer behavior. MasterCard, headquartered in Purchase, has been monitoring the change. The past year in consumer behavior has looked a lot like it did in 2011, according to Theodore Iacobuzio, vice president of global insights at MasterCard. Consumers are optimizing spending, and not just by cutting back and becoming more deliberate with payment methods regarding credit, debit use and prepaid cards.

Iacobuzio said U.S. credit card usage took a big hit in 2009. MasterCard did research measuring this from both a quantitative perspective, looking purely at numbers and a qualitative market research point of view, and determined that consumers have become more confident as they’ve focused on saving and decreasing debt.

“The U.S. consumer had the living daylights scared out of him,” Iacobuzio said. “People were engaged in reducing the level of consumer spending in the hopes of taking whatever was left over to reducing consumer debt.” That effort proved successful, after credit card usage dipped into what Iacobuzio called “a spending crater.” More recently, consumers have slowly started to climb out. In 2011, MasterCard estimated $152 billion in U.S. credit card volume growth, which is a direct reflection of increased consumer spending.

The spending has also reflected a more calculating consumer: one who buys what they can actually manage to pay for. Over the past decade, the emergence of debit cards also changed the way people have wielded their buying power. From 2010 to 2011, debit and prepaid card growth increased by 45 percent, according to MasterCard analysis.

“We engaged in this research because there was wild talk going around the industry four years ago when we were really in a crisis that people were only using debit cards,” Iacobuzio said. But that wasn’t the whole story. Through MasterCard’s research, the company has identified a new credit card user.

“Consumers have figured this one out,” Iacobuzio said. “People have educated themselves; they’ve realized that the kinds of behaviors that they’ve engaged in really for 20 years from the late ’80s to the crash weren’t going to cut it anymore.” Expectations of retirement and saving for a child’s college forced people to shift their thinking about the big purchases and using credit cards as a “wish-granting apparatus,” he continued.

Moving forward, Iacobuzio said MasterCard hesitates to forecast what’s to come, but he thinks consumer behavior will continue to evolve as it relates to balancing debt and managing spending. Because in the end, Iacobuzio said, “I think consumers have learned their lesson.”

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