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ECO0401C Guided Study in Current Economic Problems I

ECO0401C Guided Study in Current Economic Problems I . Carol Cheng 05678592 29 March 2006 Final Presentation. Paper Title. * How does the use of credit cards affect the consumption behaviour. Introduction. Reasons why these issues arouse my interest Credit cards are popular

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ECO0401C Guided Study in Current Economic Problems I

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  1. ECO0401CGuided Study in Current Economic Problems I Carol Cheng 05678592 29 March 2006 Final Presentation

  2. Paper Title * How does the use of credit cards affect the consumption behaviour

  3. Introduction • Reasons why these issues arouse my interest • Credit cards are popular • Trendy  many promotions on the streets • Social issue  many in debts/go bankrupts • New form of payment method other than using cash • Spend more? Or save more? • Would I have better financial planning? • Substituting cash? • Change in money demand

  4. Introduction • Issues under investigated • How the use of credit cards affect spending and saving patterns • Credit cards and indebtedness • Change in money demand and velocity of money

  5. Data Sources & Methodology • Consumer’s consumption and saving pattern in 1970-2000 (selected years) of US, per year • Sources: Surveys of Consumers; Survey of Consumer Finances

  6. Findings/Analysis • How the use of credit cards affect spending and saving patterns • Features of using credit cards: • More convenient than using cash • Permit people spend more than they have • Smooth out consumption even when the income is low (e.g. emergency purchase) • Increase spending power, allow to enjoy luxurious lifestyle

  7. Findings/Analysis • How the use of credit cards affect spending and saving patterns • In US, people spend much more • Although the fact that the population was much larger in 1991, total personal savings was less in 1991 than in 1984 • A far smaller percentage of families (43.5%) had savings accounts in 1989 than did in 1983 (61.7%)

  8. Findings/Analysis • Credit cards and indebtedness • In US, most of the amount of consumer credit is generated by credit cards • Total (non-mortgage) consumer credit outstanding increased from $119 billion at year-end 1968 to $1,456 billion in June 2000 (in current dollars) • With little or nothing on savings, such people who cannot pay the debts would descend to delinquency and bankruptcy

  9. Findings/Analysis • Credit cards and indebtedness • In UK, the undergraduate students were relatively a low-income, but high-debt group • Some people may use their credit cards to buy as much as possible to make themselves feel better  shopaholics • Some people may use the cards to make more cash for other events (e.g. Gambling)

  10. Findings/Analysis • Change in money demand and velocity of money • Theory: higher probability of credit card ownership implies lower demand for transaction balances with no effect on small time deposit balances. • Source: William and John (1995), “Credit Cards and Money Demand: A Cross-sectional Study”

  11. I view credit cards, bank originated or other, as a temporary but probably unavoidable retreat in the campaign to develop an efficient domestic payments mechanism. --Donald D. Hester (1972), p.285

  12. Conclusion • Credit cards are unavoidable in the modern society • Electronic money dominate • “cashless” society soon

  13. Policy Recommendation • Government can • implement limitations on the profits from credit cards • Restrict mail and telephone campaigns offering various inducements to accept new credit cards • Educate the new generations  avoid credit card abuse

  14. The End* Thank you very much

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