Canadians collectively spent more than $65 billion on credit cards last year, putting a third of their discretionary spending on plastic – yet they’re not using those cards as wisely as they could.
The American Express Financial Responsibility Survey, released today, reveals just how much credit cards influence Canadians daily. And one thing is clear – Canadians treasure the plastic they carry in their wallets but they often fail to use it effectively because they don’t fully understand how credit cards work.
“Canadians love credit cards, and rely on them constantly, but they think they know more about credit than they do,” says Anne Gronow, Director, Consumer Services Group, American Express. “Despite their good intentions, Canadian credit cardholders don’t know the basics about their own cards, including essential information such as how to calculate interest charges, the length of their grace period or the annual fees they may be paying.”
The national telephone survey, conducted by Decima Research on behalf of American Express, also indicates the extent to which credit cards are used, and gives a snapshot of Canadian credit card behavior. With average Canadian credit card holders obtaining their first card at 27, owning 3.5 cards, and typically spending $525 each month on those cards, it’s not surprising that eighty per cent of credit card holders say they require their cards to some degree to manage their personal finances.
Making The Grade
—————- Canadians don’t rank poorly in all aspects of credit card management, with seven in ten credit card holders usually paying off their monthly balance in full. But when it comes to testing basic credit card know-how, Canadians aren’t passing with flying colours. According to the survey, 58 per cent of credit card holders don’t know the interest rate they are paying on the card they use most often, 62 per cent are unaware of their credit rating, and 28 per cent do not know their card’s annual fee.
Canadians’ failing grade in credit card knowledge may be the result of how they learned to use credit cards. Nearly half of all respondents admitted they learned about credit through their own experience, with a third learning from their parents. Although those surveyed believe Canadians should start learning about personal finance and credit cards at grade school age, respondents themselves didn’t learn until their twenties.
To address the issue of credit card education, American Express has published Credit: What Do You Really Know?, an easy-to-read guide designed to help educate Canadians about credit. Written by Joanne Thomas Yaccato, best-selling author of Balancing Act – A Canadian Woman’s Financial Success Guide, the credit guide covers all of the essential information needed to manage credit cards wisely, including common credit pitfalls and a Credit I.Q. Quiz.
“Credit should not be taken lightly,” says Thomas Yaccato. “It’s a financial tool that puts tremendous buying power into our hands, and affects every aspect of our lives – including your ability to get a mortgage or even insure your car.”
You Better Shop Around
———————- Canadians are not proactive enough when it comes to making credit card choices – surprisingly, four in ten Canadian card holders don’t competitively shop for credit cards that offer the best value. Over half of Canadian credit card holders do agree they could achieve substantial savings in interest if they switch to credit cards with lower interest rates. However, only 24 per cent of Canadians have switched, cancelled or added a credit card to their wallets in the last year.
“With so many cards in the marketplace, consumers should be evaluating what they need most – and choose a card with features that are most appropriate to their spending or payment needs,” says Gronow. “If credit card holders don’t shop around they may find themselves saddled with higher charges than necessary or miss out on better deals.”
Being In the Know – Perception vs. Reality
—————————————— Do you know the difference between a credit card and a charge card? Although half the survey respondents said they did, when given a short quiz, less than two per cent got a perfect score.
Similar confusion resulted when Canadians were questioned about their credit card’s grace period, which is the number of interest-free days card holders have. Almost two-thirds of survey respondents said they knew what is meant by a `grace period,’ but when asked how many days were in their grace period, four in ten didn’t know.
Making a Statement About Credit
——————————- Clearly, Canadians love credit cards. The convenience of using credit, the ability to earn points and the ability to manage finances responsibly with credit are all key factors driving the use of credit cards upward.
“Canadians put everything from hairspray to cars on their cards,” says Thomas Yaccato. “And with 65 per cent planning to use their cards at the same rate or more often in the future, it makes sense for Canadians to learn how to use credit to their best advantage.”
———– The American Express Financial Responsibility Survey is based on a study conducted by Decima Research for American Express of 1,000 adult Canadian credit card holders by telephone in November 1996. It is accurate for the whole population within +/- 3.1 percentage points 19 times out of 20.
The Credit: What Do You Really Know? guide is part of a consumer educational program by American Express designed to teach Canadians about how to manage their finances responsibly and effectively.
American Express in Canada operates as Amex Canada Inc. and Amex Bank of Canada. Both are wholly owned subsidiaries of the New York-based American Express Travel Related Services Company Inc., the largest operating unit of the American Express Company, which provides a range of financial and travel related services for consumers and companies.
To receive a free copy of Credit: What Do You Really Know?, call 1-800-668-AMEX or (905) 474-9380.
RATING CANADIANS ON CREDIT
WILL THAT BE CASH OR CREDIT?
– The average Canadian owns 1.5 major credit cards, and two other cards,
such as gasoline or store. Each month, she/he typically spends $525
using these cards.
– Clothes, gasoline, travel expenses, household items and restaurant
meals top the list of the most common purchases Canadians make using
their credit cards.
– One in five Canadians use their credit card for purchases of $10 or
less and six per cent of Canadians have bought a car with their credit
– One quarter of Canadians spent more on their credit cards in 1996 than
in 1995, and 65 per cent plan to use their credit cards to the same
degree or more often in the future.
GIVING CREDIT ITS DUE
– Seven per cent of Canadians use their credit card primarily to stretch
out payments; 59 per cent use it for convenience and 27 per cent use it
– One in ten Canadians say they need their credit card to a large degree
to manage their personal finances. On average, these Canadians put
twice as much on their credit cards than Canadians who do not rely
heavily on their cards.
– Seven in ten Canadian credit card holders always or usually pay their
balance off in full.
– Residents of Quebec are far more likely to say they use their credit
cards to manage their personal finances. However, Quebecers say they
plan to use their credit cards less often in the future
– Among those surveyed, Atlantic Canadians report the lowest percentage
of discretionary spending on their credit cards.
SHE SPENDS, HE SPENDS MORE
– Men spend significantly more than women per month on their credit
– Two-thirds of Canadian credit card holders have had their credit card
limit increased without asking for it. However, women are more likely
than men to say they feel uncomfortable with the unrequested increase.
– While men typically carry over higher balances on their credit cards,
women are more likely to be uncomfortable with the outstanding balances
on their credit cards.
– Women are less likely than men to know the interest rate charged on the
card they use most often.
GETTING IN TROUBLE WITH CREDIT
– Twenty four per cent of Canadian credit card holders have some degree
of difficulty re-paying the money owed on their credit cards
– One in seven respondents have no idea whatsoever as to how to calculate
the interest charges on their credit card(s)
– Two in ten Canadian credit card holders say they are uncomfortable with
the amount they currently owe all their credit card companies.
– Even though credit ratings can impact everything from mortgage
approvals to purchasing a car, 62 per cent of those surveyed did not
know their personal credit rating, with four in ten Canadians not
knowing who to contact to find out that information.
The above facts were revealed in The Financial Responsibility Survey, a survey conducted by Decima Research for American Express of 1,000 adult Canadian credit card holders by telephone in November 1996. It is accurate for the whole population within +/- 3.1 percentage points 19 times out of 20.