Will You Have a Cash-only Yuletide?
There’s a story circulating that customers are using cash instead of credit for their holiday purchases this year, more than they have for many years past. I found this story detailed in Newsweek. Here are the highlights you should know:
- Credit card issuers are raising interest rates and fees, while lowering spending limits
- Some analysts are saying that a shift toward using only cash could last after the holiday season
- JC Penney’s has seen a decrease in spending near the end of a payday cycle, and an increase in spending right after paydays. While normal for discount stores, JC Penney’s hasn’t observed this in the last 17 years
- Wal-Mart has observed that payments made with credit cards decreased 7.4% in the current fiscal year. For the past three years, this percentage has increased.
- Target’s credit card operation is being more stringent with its current customers, but offering a 10% discount for new customers (I think that means a 10% discount when you first use it, which isn’t a big deal)
These factors, and more, mean that more people will be paying only what they can afford when buying gifts for the next few weeks. Readers of Consumerism Commentary who already have their finances in order will have known for a long time that carrying a balance on a credit card is unwise. But I’m sure you also realize that millions of people who don’t earn a lot still feel like they deserve to reward themselves and their loved ones, if only once a year.
Naturally, the credit issuers mentioned in the story all point to the continuing credit crunch as the reasons for their need to be more stringent. One of the scant few things we can look at to identify the badness of the credit crisis is the TED spread. Yesterday, the TED was at 2.05. Normally, we want to see a TED at under a level of 1.0, but last year this time, it was 1.95, not too terribly different from yesterday’s level.
I’m fairly certain these new decisions were made by credit card issuers a few weeks ago (it takes time to make a big change), when the TED was at panic-inducing levels of near 5.0. So does the current lower level mean that credit card issuers will change their minds?
More importantly, are you planning to pay for things differently this year, and maybe for more years to come?