Over the past few decades the spiritual side of Christmas has had a harder task getting heard over the commercial side. It was not so much the secularization of the festival of itself that caused widespread dismay, provided the festival retained its emphasis on families getting together and peace and goodwill, though many Christians would have preferred the religious element of the festival to retain prominence No, the dismay has been caused by the secularisation of Christmas leading to the festival being more about buying, giving and receiving presents and about indulging in food and drink to excess.
And now a new phenomenon has further degraded the original Christmas spirit. Not only are people succumbing to the commercial pressures to buy and over-indulge, they are now doing it more and more on credit. So not only do they wake up after Christmas with a hang-over, but also with large credit-card bills that they cannot hope to pay off in minimum time, resulting in large fees for the banks. The burden is falling disproportionately on those who can least afford it.
The average outstanding balance will go over the $2000 mark, that is up 16 per cent on the same time last year. The growth in credit-card transactions has been alarming. After the Christmas binge total credit card debt will hit $20 billion. It has doubled over the past three years. It would not matter if the transactions could be put down to people preferring the safety and convenience of electronic transactions to cash one, but the evidence it pointing to people being sucked in to running up greater bills than they can pay for – particularly if unexpected expenditure arises the following month.
Nor would it matter so much if the costs of credit cards were being distributed equitably, but the evidence indicates to the contrary. There are three inequities in the present credit-card system. First, interest rates are well above ordinary rates, even allowing for the increased risk of unsecured credit. Second, the banks charge each other very large “”interchange” fees. These fees are secret and uncompetitive, given there are only four banks. Third, the banks charge merchants an average “”commission” of about 2 per cent on transactions. This would be fine if it were paid by credit-card users, but merchants are prohibited from passing it on to credit-card users, so the cost is spread by increasing prices to everyone. It is easy to see how the well-off and the prudent are being subsidised by the les-well-off and profligate.
Now, maybe prudence should be rewarded and profligacy punished, but the capacity of the banks and the power of advertising can be difficult forces to resist. And the present system gives big rewards to banks to get people to use credit cards. The prudent should have no fear of reform. They could still use debit cards to obtain the security and convenience of electronic transactions. True, they would miss out on rewards schemes, but these piggy-back on the inequities outlined above to encourage people to use credit cards so bank can reap profit.
The Reserve Bank has proposed reform of the system – allowing for retailers to join banks in issuing mainstream cards; to reform the interchange fees and to allow merchants to charge for the use of credit cards. No doubt the banks will squeal loudly.
But as the Christmas binge reveals, it is too easy for banks and retailers to tempt and too easy for people to fall for the temptation. It would be better if there were disincentives for credit use by banks, merchants and customers rather than the present system which actively promotes it.
There might be more joy in Christmas if we were encouraged to live within our means.