Think before you flash that plastic
Credit cards are a convenient way of getting what we want. Just by flashing a piece of plastic, we can sign up for the latest phone package, get a discount on a fashion must-have and buy the groceries. They have taken us almost to the brink of that fabled cashless society, where coins and notes can only be found in museums. But we should be cautious as well. Along with the many advantages that easy credit brings to us come some real risks.
As we pull away from the global financial crisis, that should be kept firmly in mind. Reckless credit card debt was, in part, responsible for driving the economy of the US - and much of the world - into recession. Aggressive marketing by card companies and banks, especially towards the poor and young, extended so much credit that it was effectively unpayable. Just before the bubble burst in 2008, American household debt stood at 130 per cent of disposable income; card repayments were a large chunk of that.
Those events seem far in the past as we join yet another discount programme or buy a new electrical appliance. It is certainly not a matter too many university students will think about as they encounter an irresistible purchase while window shopping. With their recently acquired cards, goods can be bought even though they cannot afford them. That is hardly surprising; but it is a temptation we need to guard against. Certainly, retailers have no incentive to warn us to temper our desires. As much as we need to keep the economy humming along, though, we also need to spend sensibly. The day of reckoning eventually comes, after all.
A recent University of Hong Kong study gives reason for concern. Based on a sample of 506 phone respondents, it showed that cardholders were increasingly paying minimum amounts owing rather than totals due. That, of course, exposes them to interest payments of 30 per cent and more and penalties that take charges considerably higher. One in five had, at some stage, been unable to make a repayment.
Seven in 10 said they had at times paid only the minimum, more than double survey results for the US, which has by far the world's highest credit card debt. That has contributed to rising amounts owing here, which the Monetary Authority put in the second quarter at HK$74.5 billion on 13.1 million cards - up HK$2.9 billion on the first three months. The amount seems hefty, but is actually moderate compared to other developed economies, being 4.5 times less than Australia, almost a tenth of Britain and an 83rd of the US. Despite each of us having on average three or four cards, we are at least, in general, responsible users.
That is no reason for complacency, though. A massive credit card industry has developed in just over a generation, and not unreasonably, it is fighting for market share. There are more promotions than ever to get us to use such services. Cards have never been so easy to obtain. We increasingly rely on them for routine purchases. A culture of credit is developing, even though we are good at saving. It is time for caution. We need to better educate ourselves about responsible credit card use - to buy only what we can afford and consider carefully the consequences of not repaying in full each month. Card companies also should be responsible; if they are not, rules like those that have come into force in the US restricting what they can charge may be necessary. For inspiration, we need only look to Americans, struggling with debt payments that are hindering economic recovery.