Academic journal article Contemporary Management Research

Understanding Young Consumer Perceptions on Credit Card Usage: Implications for Responsible Consumption

Academic journal article Contemporary Management Research

Understanding Young Consumer Perceptions on Credit Card Usage: Implications for Responsible Consumption

Article excerpt

ABSTRACT

The usage of credit cards among young consumers is often irresponsible - they tend to overspend and as a result find themselves in a debt situation. While existing research has often attributed overspending to the availability of advance credit, there remains a dark spot in understanding why consumers are overspending, particularly through the use of credit cards. This study aims to understand consumer perceptions on the usage of credit cards and subsequently provide recommendations to promote the responsible use of credit cards. Fifteen qualitative, in-depth interviews with young consumers were employed to understand their perceptions and considerations toward the usage of credit cards. Findings suggest a change in consumer culture from one which focused on saving first, spending later to one which encourages spending now, thinking later. Various rationales have been identified as motivators that encourage credit card usage, including security trends for a cashless society and as a reflection of social desires. Attractive rewards and poor spending restrictions afforded by credit cards were the main influences that caused young consumers to spend more than what they could afford, thus leading to a situation of overspending. Implications and recommendations from the findings are presented.

Keywords: Credit Cards, Responsible Consumption, Consumer Behaviour

INTRODUCTION

What causes irresponsible consumption? A very good example of irresponsible consumption is overconsumption, and a good example of overconsumption is overspending. In contemporary times, more often than not, consumers will encounter situations in which they have overspent on their purchases. So the questions now are - (i) why do consumers overspend?; and (ii) what are the main reasons that have caused consumer overspending? An answer, undeniably, can be attributed to credit cards. Past research has shown that sources of credit, particularly credit cards, are the main reason for over-spending as they enable consumers to spend beyond their income (Wiggins, 2008). When individuals use a credit card, they are spending future money.

Today, almost every adult, and even some teenagers, mostly from the middle and higher classes, own at least one credit card. Credit cards have been introduced to simplify purchases and make purchases more convenient. However, credit cards have also been the culprits to heaps of debt to the consumers themselves. More notably, credit cards have changed the spending behaviour of contemporary consumers.

Recent research suggests that consumers today expect their future incomes to be higher than their present income (Soman & Cheema, 2002). According to O'Keeffe et al. (2005), this creates a trust upon a philosophy of "buy now, pay later" as consumers believe that future incomes will be able to allow them to cover their current expenses. In addition, the applications of the credit cards are getting easier in contemporary times as compared to ten years ago where official pay slips of at least 3 months were needed before application forms could be submitted. The simplification of credit card applications does bring conveniences for consumers, but indirectly, it also lures consumers who are less rational to overspend.

Statistics show that credit card transactions are increasing at an average rate of 22.2% yearly since year 2000 (The Edge Daily On-Line, 2007); the simplification of obtaining credit cards has been attributed to the increase of credit card transactions. Such unhealthy situations have brought countries, like Malaysia, into a high situation of national credit card debt (e.g. RM23.3 billion credit card debt in Malaysia). In Malaysia, out of 3,548 individuals who were declared bankrupt due to credit card overspending, 1,774 of those individuals are aged 30 and below (i.e. about 50%).

While existing research has often attributed overspending to the availability of advance credit, there remains a dark spot in understanding why consumers are overspending, particularly through the use of credit cards. …

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