Watchdog: Consumers 'More Responsible' With Credit Card Debt
In the years before the Great Recession, many Americans piled up too much credit card debt. Now, they seem to be a little wiser about using their plastic. But it can be tough staying disciplined while taking the kids for back-to-school shopping.
The Great Recession has taught Americans a valuable lesson, according to the country's top consumer watchdog.
"Coming out of the financial crisis, consumers have been more responsible about thinking about how to approach their credit card debt," says Richard Cordray, who heads the Consumer Financial Protection Bureau.
He told the Senate Banking Committee recently that Americans aren't carrying as much credit-card debt as they used to. And people are getting better at paying off their credit cards each month.
According to the National Federation for Credit Counseling, only about one household in three now carries credit-card debt over from month to month. That's a drop from 2009, the peak of the recession, when 44 percent of households carried credit card debt.
"I'm seeing clients with fewer credit cards," says Tricia Lawrence, a veteran counselor for ClearPoint, a nonprofit counseling agency. From her cubicle in downtown Atlanta she's helped thousands of people improve their credit scores.
Recently, Lawrence was on the phone with a young woman who wants to get married and buy a house, but her credit rating is shot. She also owes about $5,000 on her credit card.
Lawrence still sees lots of people who are living above their means, but she's also noticed a drop in the amount of debt since the recession.
"It wasn't too unreasonable to speak to a client who had on average $50,000 or more in debt, whereas now maybe the client has about [$15,000] maybe $30,000 worth of debt," she says.
The recession changed the mindset of many Americans and they just don't shop like they used to, says Tom Smith, who teaches finance at Emory University.
"There is a new level of consumers that are rethinking the priority of purchases. ... the flipside of that would be that [retailers] would see much smaller activity," Smith says.
That could be one reason the National Retail Federation isn't seeing the growth it expected this far out from the recession. The group recently forecast sales growth of 3.5 percent for this year — down from the 4.1 percent gain it projected earlier.
Back-to-school shopping has always been a good midyear boost for retailers, but a survey by Deloitte finds that people still have school supplies stocked away and plan to spend a little less than they did last year.
One of those is Joanne Santivasci, who was shopping for her two kids at a store in Atlanta. "This year we're reusing some backpacks and lunchboxes," she says.
Credit counselors say that keeping those impulse buys in check is key to financial health. With the recession still in America's collective memory, retailers may have to wait a few years for the rebirth of the big spenders.
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Transcript
RENEE MONTAGNE, HOST:
Americans added $5.5 billion in credit card debt in June according to a new report by the Federal Reserve. That sounds like a lot of credit card spending, and it is an increase over recent months. But the big picture is more about less, not more credit card debt. From member station WABE in Atlanta, Susanna Capelouto reports.
SUSANNA CAPELOUTO, BYLINE: The Great Recession has taught Americans a valuable lesson, according to the country's top consumer watchdog.
RICHARD CORDRAY: Coming out of the financial crisis, consumers have been more responsible about thinking about how to approach their credit card debt.
CAPELOUTO: Richard Cordray heads the Consumer Financial Protection Bureau. He told the Senate Banking Committee recently that Americans aren't carrying as much credit card debt as they used to. And people are getting better at paying off their credit cards each month. According to the National Federation for Credit Counseling, only about 1 in 3 households now carries credit card debt over from month to month. That's a 23 percent improvement from 2009, the peak of the recession.
TRICIA LAWRENCE: I'm seeing clients with fewer credit cards.
CAPELOUTO: Tricia Lawrence is a foot soldier in the war on debt. She's a veteran counselor for Clear Point, a nonprofit counseling agency. From a cubicle in downtown Atlanta, she's helped thousands of people improve their credit scores. Today, she's on the phone with a young woman who wants to get married and buy a house, but her credit rating is shot. She also owes $5,000 on her credit card.
LAWRENCE: So do you give your parents any money for rent?
CAPELOUTO: Lawrence still sees lots of people who are living above their means, but she's also noticed a drop in the amount of debt since the recession.
LAWRENCE: It wasn't too unreasonable to speak to a client who had on average $50,000 or more in debt whereas now maybe the client has about $15,000, maybe $30,000 worth of debt.
CAPELOUTO: The recession has changed the mindset of many Americans, and we just don't shop like we used to, says Tom Smith, who teaches finance at Emory University.
TOM SMITH: You know, there is sort of a new level of consumers that are rethinking the priority of purchases, and, I mean, the flipside of that would be that retail associations would see much smaller activity.
CAPELOUTO: That could be one reason the National Retail Federation isn't seeing the growth it expected this far out from the recession. The group recently lowered its sales growth forecast for this year to just 3.5 percent, down from an earlier projection of 4.1 percent annual growth.
ELIZA: I don't want these. I want the paint.
CAPELOUTO: Back-to-school shopping has always been a good mid-year boost for retailers, but even there, a back-to-school survey by Deloitte finds that people still have supplies stocked away and plan to spend a little less than they did last year. One of those is Joanne Santivasci, who is shopping for her kids Eliza and Jack at a store in Atlanta.
JOANNE SANTIVASCI: This year, you know, we're reusing some backpacks and lunch boxes and...
ELIZA: Momma, I want to get a new lunch box.
SANTIVASCI: I know you want new ones. Well, everything is so attractive because of all the characters. Everything looks like toys.
CAPELOUTO: Credit counselors will tell you that keeping those impulse buys in check is key to financial health. With the recession still in America's collective memory, retailers may have to wait a few years for the rebirth of the big spenders. For NPR News, I'm Susanna Capelouto in Atlanta. Transcript provided by NPR, Copyright NPR.
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