Changes in consumer financial behaviour

The use of finance and credit has gradually and consistently increased over the last decade. There are now more credit based facilities than ever before and as such consumers have the ability to borrow in a various different ways. Whereas in the past credit was traditionally used for large scale purchases, such as a Mortgage for example, the modern day consumer is just as likely to use credit for their small term financial needs. Better and quicker access to goods and services in a generalised sense mean that consumers have become accustomed to an ability to purchase in the here and now and have long left behind beliefs concerning whether or not any given purchase is immediately affordable. That is not to say that consumers are not perfectly capable of managing a host of different credit based facilities, as many in fact are. Many younger consumers have ‘grown up’ within an economy which provides credit, should it be needed, for a whole host of functions and therefore consider it to be common-place in fact.

Nowadays current and regularly used forms of credit include that of credit cards, short term loans, home lending and store based credit. Matured generations may have only used credit for their Mortgages or larger scale purchases; such as a new car but the modern day consumer behaviour is much more varied. Credit Cards have now been available for over half a century, with Barclaycard celebrating 50 years of service recently. Credit Cards have become a popular consumer resource given their flexible nature. A Credit Card will be issued with a pre-approved credit limit, allow unlimited purchases in terms of size and number, up to this limit. Credit Card repayments are then structured on a monthly basis and can be repaid at a ‘minimum amount’ should the customer prefer to do so. Equally repaying the balance in a timely manner will not only reduce the total amount payable, in terms of potential interest but also make the available credit available once more. Another popular consumer borrowing choice, which is relatively new compared to other resources is that of short term loans. Known also as payday loans, these credit based facilities allow a one-off deposit of an agreed sum to be made to the customer’s bank account and is then repaid via a number of pre-agreed monthly instalments typically. Short term loans have become popular given their small nature and flexible repayment options as well as their ability to potentially serve those consumers who have struggled to obtain credit elsewhere.

It is interesting to consider just how much consumer spending habits have shifted in the last few decades. Whereas in the past consumers were much more likely to use credit only in large sums and for extended periods of repayment, the modern day consumers credit habits are in stark contrast. It would appear one route of such change is the escalating cost of the property market. Changes to the state of the economy and increasingly house prices mean that less consumers are able to secure mortgages and as such are not demanding the same financial needs as that of older generations. The lack of the need to effectively manage a mortgage based commitment could then contribute to why young consumers are more inclined to use smaller and shorter term credit facilities. It would certainly seem that the prioritises of the modern day and younger generation consumer are very different, with many taking advance of the ability to further their education, travel the world or simply ‘live in the moment’; all of which are more likely to be supported by smaller credit based facilities if needed.

It will be fascinating to see how the next few years play out in terms of consumer financially stability. With economic changes thanks to BRITEX and advancing capabilities attributed to improving technology, it is difficult to predict what our financial futures may hold. One thing which appears evident it is the fact that credit, in its various different shapes and sizes, is here to stay and will continue to form part of our regular financial needs. Those who existed in a time where credit was not common-place may then be surprised at the modern day and changing economic climate which now exists. As the years pass it may be that large scale lending becomes more accessible and therefore desirable to consumers but as it stands today, it is very clear that short term and small scale credit based facilities reign supreme.  

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

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Author: Internal Marketing Department