Consumers Breaking Free From Recession Mindset

By Pete Rizzo (@pete_rizzo)

Four years removed from a fiscal crisis, do U.S. consumers feel in control of their finances?

A newly released MasterCard Global Insights’ white paper may have set out to analyze the current credit/debit dynamic among U.S. consumers, but according to Global Insights analyst Nitin Sumangali, this question was the driving force behind its findings.

“In the early years of the crisis, there was a real emphasis on control,” Sumangali told PYMTNS.com in the interview. “The lack of control people felt over their finances was pronounced when we look at data from 2009 and 2010… The reemergence of people’s sense of financial well-being is very closely tied to this idea of control.”

Using publicly available data from the last four years, MasterCard Global Insights showed that U.S. and prepaid card volume grew by $129 billion, and that U.S. credit card volume increased by $172 billion in 2012. The figures were up 7 percent and 8.4 percent from 2012, respectively.

The results, according to the white paper, are proof consumers’ financial anxieties are improving. However, what’s more interesting to Sumangali is how the findings are broadly applicable to more general consumer spending trends. Sumangali noted that the recession led to a drastic overhaul in how consumers think about spending, one that still holds influence today.

For more on insight into the mind of today’s consumers, PYMNTS.com spoke to Sumangali for his analysis of MasterCard’s “Road To Recovery: The Cautious Rise Of The U.S. Consumer.”

PYMNTS.com: “Road To Recovery delves into consumer behavior trends going back to 2008. In your opinion what are the top trends in the past five years?

Nitin Sumangali: One of the big questions we ask consumers every year is ‘Do you feel in control of your finances?.’ Comparing the data from 2012 to 2009, we do see consumers feel a lot better about their finances.

From 2008 to 2012, we did see that there was a net shift away from credit cards to debit cards. What we also found that is very interesting… is that some of this shift has started to moderate and reverse.

The other big trend I’d highlight is the move from cash to debit. According to our research, about $90 billion in spending moved from cash to debit from 2008 to 2012. One of the things that this tells us is that consumers are looking for the benefits electronic payments provide.

Your report also reveals a shift from cash to debit. How significant is this shift and what role do you believe electronic payments play in displacing other forms of payments?

One of the things that we’re seeing from the shift away from cash and toward debit and other forms of electronic payments. In the wake of the crisis, consumers began to view themselves as a small business, asking ‘How do they manage their inflows?’ ‘How do they outflows?’

We see that the benefits of electronic payments in terms of displacing cash really stems from this idea that it’s a better idea for consumers to manage their spending in a holistic way across all products, and that includes borrowing and spending and improving their financial health.

Based on your experience how do you expect consumer spending behavior to trend in the near term?

One of the things we talk about is that the benefit of having four years of data is that we can separate the signal from the noise. If you look month to month or week to week, there’s always new economic data and it moves in a jagged line upwards… It’s difficult to get a real sense of how things are moving.

In the near-term I do think that consumer spending data is going to continue to improve.

For Sumangali’s take on the findings of recent economic indicators, listen to the full podcast below.

*If you have trouble with the audio player above, click here.

Nitin Sumangali Analyst, Global Insights

Nitin Sumangali is an Analyst in the Global Insights group of MasterCard Worldwide. He is responsible for analyzing MasterCard and third-party research to support the development of market, consumer, and financial insights that can strengthen the performance of MasterCard and its customers worldwide. Mr. Sumangali is based in Purchase, N.Y. and can be reached at nitin_sumangali@mastercard.com.