Under-30s Flock Aboard Credit Card Bandwagon
The Age
Sunday September 7, 1997
WITH less time, more money and no patience for prehistoric financial practices, almost half of young Victorians hold a credit card with a bank or credit union.
The under-30s generation is using credit for more than just emergency relief when unexpected bills pop up. As the need for convenience overtakes the traditional need for a pocket full of cash, more young people are becoming comfortable with plastic transactions.
As banks revamp savings accounts and increase charges for standard transactions, fee-free credit card purchases are now a cost-effective alternative. The National Bank, for example, recently restructured its accounts to encourage less branch contact and more electronic access.
But customers making more than eight to 10 electronic transactions a month are facing more fees. Exceed the monthly transaction limit and a visit to the ATM costs 50 cents for every withdrawal. Even a trip to the supermarket and a swipe through the Eftpos machine costs 35 cents.
For younger people more confident juggling plastic, and more likely to overuse electronic services, credit cards can save on transaction fees. Instead of withdrawing cash or using Eftpos, most purchases can be put on credit and paid off in one hit when the bill comes in at the end of the month.
Clocking up numerous purchases on credit may also attract free flights and shopping vouchers via loyalty schemes, but overuse can be dangerous if the balance grows out of control.
Industry watchers believe younger card holders are more at risk. "The debts aren't usually quite as large but maybe they're a bit more frequent," says Phil Timms, head of marketing with Credit Union Services. "The balance seems to just creep up on them and get out of hand."
An overinflated balance may be a simple case of misunderstanding how a credit card account works. Some credit card holders believe the preset limit on a credit card prevents them from blowing their balance. Not so. According to the banking ombudsman's office, if a merchant does not have to seek authorisation on a purchase, the transaction is processed.
The ombudsman sees hundreds of credit cards complaints a year and although the office doesn't carry anecdotal evidence proving younger people have more problems with cards, key stumbling blocks like credit limits are likely to effect young credit users.
Joining a gym and placing the monthly membership fee on direct debit via the credit card is a relatively common practice. But what some holders fail to realise, says the ombudsman's office, is that cancelling the credit card does not cancel the direct debit. The bank has an obligation to meet these debits, leaving the card holder with ongoing debt and monthly credit card statements.
To cancel gym membership, a magazine subscription or monthly health insurance payments, the company must be directly contacted in writing.
Another cancellation problem the ombudsman's office sees as result of misunderstanding credit obligations is card holders trying to avoid paying for a purchase. Unlike a cheque, which can be cancelled for a fee, once a purchase is placed on a credit card, banks can't reverse the transaction.
Young graduates ready to enter the workforce, who need the convenience of credit but lack the discipline to avoid blowing the limit in one afternoon at a department store, do have a credit alternative. Enterprise Credit Union's corporate development manager, Peter Boyd, says many young members take up the Visa debit card instead of a traditional credit card.
The card is credited with purchases, just like a credit card, but instead of going into short-term debt, the card holder pays the monthly bill from their own pool of funds. Credit unions charge up to $2 a month for the debit card, and the cards can be used overseas.
© 1997 The Age
