Increase in consumer defaults reflects strain on household budgets
Wednesday 7 May 2008, 9:19AM
By Veda Advantage
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Consumer defaults are on the rise, particularly for basic utilities such as phone and internet, according to the country’s largest credit information provider, Veda Advantage.
Statistics from Veda Advantage’s credit bureau show total defaults for the first quarter of 2008 up 11% on 2007. The number of defaults on bill payments for phone and internet services had the sharpest increase, by 148% and 100% respectively on the same time last year.
Veda Advantage NZ Country Director John Roberts says, “The rise in defaults is an unfortunate economic indicator at the moment. Fewer people are applying for credit, and more are struggling to meet basic financial obligations. Bills for things like phone and internet are deemed less essential, so they are one of the first expenses to be ignored. One can see there being a further rise in defaults as the cost of running a household climbs as we approach the winter period.”
The study also highlights the changing trends amongst generations and their default behaviour. Where previously Gen X was the largest defaulter on credit card and hire purchase payments, the rate at which Gen Y is defaulting is steadily on the rise. The deteriorating credit habits of 18-28 year olds are reflected in a 15% rise in defaults on credit cards since 2003, with the gap between Gen X and Gen Y defaults closing significantly over that period. Figures released last month by Veda Advantage revealed that Gen Y was also the most credit hungry age group, particularly in applications for credit cards, indicating that increasing default trend is likely to continue.
Mr Roberts says, “We’ve calculated that average household expenses have risen by as much $1000 a month as a result of spiralling interest rates, fuel costs and food prices. While that is a good reason why defaults on communications services have gone up, in the case of Generation Y I think it’s as much a case of a lack of financial literacy as any macroeconomic factor which underpins their trend towards increasing default behaviour.”
The default statistics come on the back of a Veda Advantage study which showed a decline in applications for personal credit, reflecting a drop in consumer confidence.