Cambridge Consumer Credit Index: More Being Spent on Back to School Purchases

Agawam, MA ? Nearly a third of Americans (30%) who have children in school plan to spend more on back-to-school supplies, according to the Cambridge Consumer Credit Index. That is down slightly from 32% a year ago. 12% of American parents (unchanged from 2004) plan to spend less on school supplies, while 58% (up from 56%) plan to spend about the same as in 2004.

When asked how they will pay for their purchases, 50% plan to use cash, while 27% will use debit/ATM cards, 13% will charge it on their credit cards, and 9% will use personal checks. Compared to a year ago, that is an increase of 6% in use of debit cards and a 2% increase in credit card use and a drop of 9% in payment by personal check. 31% of population have school-age children, while 69% of Americans do not have school-age children.

“The results of the Cambridge Consumer Credit Index wildcard question show although spending patterns have not changed significantly from 2004, many more parents plan to pay for back to school purchases with debit/ATM cards and a few more will be using their credit cards. The big drop in use of personal checks indicates that the debit card is replacing check use,” says Jordan Goodman, spokesperson/financial analyst for Cambridge Consumer Credit Index.

The overall Cambridge Consumer Credit Index fell by 5 points in August to 58. The Index fell sharply in both its intentions on credit use in the past and present month, but rose slightly in its intentions for the next six months. The ?Reality Gap,? which is the difference between the amount of debt consumers say they will pay off in the next month versus the amount of debt they actually paid off a month later, fell by one percentage point from July to 13 points. A month ago, 80% of Americans planned to pay off debt, while a month later only 67% actually did so.

These findings are the result of monthly nationwide telephone poll of 800+ adults conducted by ICR/International Communications Research in the past week, sponsored by the Cambridge Credit Counseling Corporation.

According to Chris Viale, President and CEO of Cambridge Credit Counseling Corp., “It is reassuring that the majority of parents will use cash, debit cards or personal checks to make this year’s back-to-school purchases, rather than relying on credit. This time of year provides a great opportunity for parents to teach their children basic budgeting and money management skills that they will be able to use throughout their lives. As is the case when shopping for anything, such expenses should be factored in to an overall spending budget that is within your means, and not one that will bring you deeper into debt.”

In conjunction with the Index, Cambridge Credit Counseling Corp. is releasing its monthly survey of people who have called in for credit counseling services over the past month. Cambridge representatives ask callers for the primary reason that they found it necessary to get help with their debts now. Of the 299 people who answered, this was the order of their responses:

1. I am frustrated with high bank rates and fees (31.1%)
2. My income has been reduced from a lower salary, less overtime or layoff (31.1%)
3. I want to improve my ability to achieve future financial goals like buying a house or saving for retirement (16.7%)
4. I got into too much debt by overspending (6.4%)
5. Other (6.0%)
6. My lack of financial education caused me to take on too much debt (4.4%)
7. Large medical expenses forced me to take on huge debts (2.3%)
8. Recently divorced or widowed (2.0%)

For more information on the survey see http://www.cambridgeconsumerindex.com/index.asp?content=client_survey.

The Cambridge Consumer Credit Index number is a composite of these three questions:

1. In the past month, have you taken on more debt or paid off debt?

The Index reads 66 on this question, down by 10 points from July.

In August, 33% of Americans say they have taken on more debt, with 23% taking on a little and 10% taking on a lot more debt. Conversely, 67% of Americans have paid off debt, with 45% paying off a little and 22% paying off a lot.

2. In the next month, do you anticipate taking on more debt or paying off debt?

The Index reads 34, down by 6 points from July.

In August, 17% plan to take on more debt, with 6% planning to take on a lot and 11% planning to take on a little debt. Conversely, 83% plan to pay off debt, with 65% paying off a little and 17% paying off a lot. In July, 20% planned to take on debt and 80% planned to pay off debt.

3. In the next six months, do you expect to take on debt because you are thinking of making a major purchase such as a car, education, appliance, medical procedure, furniture or carpeting?

The Index reads 74 on this question, up by 2 points from July.

In August, 37% of Americans plan to take on more debt to make such purchases, with 13% taking on a lot of debt and 23% taking on a little more debt. In contrast, 63% of Americans plan to pay off debt in the next six months, with 47% expecting to pay off a little and 17% expecting to pay off a lot. In July, 36% of Americans planned to take on more debt, while 64% planned to pay off debt.

“The results of the Cambridge Consumer Credit Index show that consumers are cutting down their credit use significantly now and are cautious about taking on much more debt to make major purchases over the next six months. This is probably because rising interest rates and energy prices are pinching their discretionary income,” says Jordan Goodman, spokesperson and financial analyst for the index.

The Index survey is conducted by ICR (International Communications Research) of Media, Pennsylvania over five days in the week before the Index is released. Over 800 households are polled based on random-digit dialing, with all demographic and regional groups in America fairly represented. The Index has a margin of error of plus or minus three and one-half percentage points.