Kiwis will turn to credit if Bollard raises interest rates

Photo / Amos Chapple

Over a third of kiwi households will have to use credit to pay for otherwise unaffordable expenses if the Reserve Bank increases interest rates in the coming months, according to a Dun & Bradstreet survey.

The debt collection and credit information company's consumer credit expectations survey, which focuses on New Zealanders' September 2010 quarter expectations for savings, credit usage, spending and debt performance, also indicates that 18 per cent of households expect their debt levels to increase during the third quarter of the year.

Concerns about rising interest rates appears to be steering New Zealanders away from new credit applications, with less than 10 per cent of households intending to apply for a credit card, home loan, personal loan or credit limit increase on an existing account.

Dun & Bradstreet N.Z. general manager John Scott said it appeared that some New Zealanders had failed to learn important lessons from the global credit crisis, with the survey revealing positives and negatives.

"Consumers are concerned about the impact of rising interest rates on their finances and consequently many consumers are steering away from new credit applications," Scott said.

"However, many New Zealanders are expecting a need to pay expenses on their credit card and some of these individuals are planning to make significant purchases which will be funded using credit or interest free deals."

Some consumers "are finding it tough making ends meet, while for others, it appears that consumer conservatism has fallen by the wayside and a return to a credit fuelled lifestyle is on the horizon," he said.

Two groups that were not showing as many signs of financial stress, young people and men, have significant intentions to spend in the September quarter.

Thirty one per cent of those aged 18-34 plan to make a major purchase, a figure that is five per cent higher than middle aged kiwis.

Meanwhile, 33 per cent of men and 23 per cent of women intend to make a significant purchase during the same time.

Scott said that traditionally young people had been the group which had demonstrated a lack of understanding about appropriate credit behaviour, though the latest survey demonstrated a trend within this demographic to be more cautious with debt.

Forty four per cent of 18-34 year olds indicated they may have extra funds in the coming months, compared to 33 per cent for 35-49 year olds and29 per cent for 50+. "In addition, 53 per cent of the 18-34 year olds indicated they will save the funds, while just 13 per cent in this group said they would spend the money," said Scott.

"We began to see a trend towards better financial management when the credit crisis was in full swing," he said. "However, the latest results indicate that for some groups this shift appears to be a long term move. This is a very positive sign and we'd hope to see it continue once the global economy is performing well and people are feeling much more secure about their finances."