According to recent data from HSBC UK, there’s a noticeable change in how consumers are using their credit cards. Despite an increase in spending, people are displaying prudent financial habits, staying well within their credit limits.
HSBC UK’s data reveals that customers are spending more on their credit cards than they did four years ago, with an average expenditure of £656, and an average of just over £50 per transaction. This change represents a 20% increase in spending compared to the pre-pandemic era in 2019. One of the key drivers behind this spike is the escalating cost of living, prompting consumers to rely more on credit for their purchases.
Healthy Financial Habits
However, it’s not all about increased spending. The data also shows a decrease in the number of customers using credit cards — a 2% drop compared to 2019. What’s more encouraging is the demonstration of healthy financial habits by many customers. A significant number of HSBC’s UK customers, about 45%, are paying off their credit card balances in full every month. On average, customers are utilising just one-fifth of their available credit limits, indicating a cautious approach towards debt accumulation.
Credit Card Uses Beyond Borrowing
The HSBC study highlights that people use credit cards for diverse reasons beyond just the ability to borrow. For instance, young adults under 24 are attracted to rewards and cashback offers, while millennials (aged 25-34) prioritise improving their credit scores. People over 35 tend to value the protection on purchases offered by credit cards.
Credit Cards for Essentials
A particularly striking finding is that more than half of UK citizens use credit cards to pay for essentials like groceries and fuel at least once a week. This trend is an indicator of the pressure the rising cost of living is placing on household budgets.
Expert Advice
Madhu Kejriwal, HSBC UK’s head of unsecured lending, cautions that while credit cards can be a useful financial management tool, they should not be used as a means to spend beyond one’s repayment capacity.
Wider Context of Financial Strain
This trend in credit card usage occurs against a backdrop of increasing financial difficulties for many families. The Abrdn Financial Fairness Trust recently reported that families in serious financial difficulty are increasingly resorting to debt to cover daily expenses. This situation is exacerbated by the continued rise in living costs, with food prices remaining significantly higher than they were a year ago.
Conclusion
While the increase in credit card spending in the UK reflects the challenging economic environment, the evidence of prudent financial management by a considerable portion of consumers provides a silver lining. It underscores the importance of using credit wisely, especially in times of economic uncertainty.