Consumer holiday spending cuts less than expected
November 5, 2001

WASHINGTON– As they prepare to shop for the holidays, consumers plan to cut back on spending, but not much more than last year. And fewer consumers are worried about their debt.

That’s according to the second annual holiday spending survey conducted by the Consumer Federation of America (CFA) and the Credit Union National Association (CUNA). This year’s survey of 1,019 consumers was conducted for the two groups by Opinion Research Corporation International October 25-28.

Over one in four consumers (28%) plan to spend less this holiday season than last year. That compares with only 13% who plan to increase holiday spending. Still, the majority--57%--plan to spend the same as last year. That compares to last year’s survey findings where 24% planned to spend less, 18% planned to spend more, and 56% planned to spend the same.

“Given significant declines in consumer confidence and the rise in unemployment, some reduction in holiday spending plans is not at all surprising. But these results suggest that the contraction in holiday spending may not be as pronounced as we might have expected.” said CUNA Chief Economist Bill Hampel.

Fewer Consumers Worry About Debt

Another surprising finding is that fewer consumers are worried about paying off current and future consumer debts. Consumer concern about meeting monthly payments on current consumer debts (excluding mortgage debt) fell from 48% last year to 39% this year. Moreover, concern among those with credit card debt being able to pay off credit card balances resulting from holiday spending declined significantly – from 35% last year to 27% this year.

“For the first time in a decade, we have seen a sharp drop in consumer concern about paying off debt,” said Stephen Brobeck, CFA executive director. “Certainly one important reason is that a growing number of Americans are paying off or managing their consumer debts effectively.”

The survey suggests several reasons for this declining concern about consumer debt. In addition to their plans to cut back spending, consumers plan to finance less of this spending with credit card debt. Only 22% plan to use a credit card to make “most holiday purchases,” down from 26% last year. And fewer consumers are currently carrying credit card debt. Only 38% report that they are carrying this debt, down from 42% last year.

Declining interest rates also appear to have played a role in lessening consumer concern. Lower rates have decreased interest obligations, especially on installment debt, and have encouraged refinancing of consumer debt with mortgage debt. That helps to explain why monthly consumer debt obligations as a percentage of disposable personal income have risen only from 7.6% in the first quarter of 2000 to 7.8% in the second quarter of this year.

Young Adults, Families, and the Least Affluent Worry Most About Debt

Some consumers, however, have greater concerns about debt than do others. Young adults, those with low to moderate incomes, and families tended to express most concern.

Concern with meeting monthly debt payments was highest for young adults aged 18-34 (49%), for low- and moderate-income households (54%), and for families of three or more persons (47%) compared to 39% for all consumers.

Concern with paying off credit card debts related to holiday spending was greatest for adults aged 18-34 (37%), for low- and moderate-income households (47%), and for families (34%) compared to 27% for all consumers.

Finally, given a $5,000 windfall, young adults (25-44 years) and families were most likely to use the funds to pay off debt. Fifty-four percent of the young adults and 49% of families said they would do so compared to only 42% of all consumers. (36% of all consumers said they would save the windfall and 17% indicated they would spend it.)

CUNA and CFA Suggest Holiday Spending Tips

CUNA and CFA continue to caution consumers to avoid getting overextended this holiday season. To reduce credit card worries, CUNA and CFA suggest the following:

Trim Your Interest Payments. If you pay with a credit card instead of cash, make sure you use a card with a low interest rate. Now is an especially good time to look for a lower rate since some card rates have dropped more than others this year. Rates from not-for-profit credit unions average about 2.5 percentage points less than bank cards, and usually have lower fees. Also, if you finance some holiday purchases with a credit card, pay down those balances as quickly as possible next year. For a $1,000 balance, the monthly interest charge can be as high as $15.

Open a Christmas Club Account. In January, open a Christmas Club account. Most credit unions and many banks offer them. Put some money in each month based on how much you spent this year. This way, when it’s time to shop for the holidays again, you’ll have all the money you need. And you’ll earn interest rather than making big interest payments to finance next year’s holiday shopping.

Back to News Release Index