Debit Your Credit

Hooray! Finally some good news - I think!

In a recent report release a couple of weeks ago by Javeline Strategy & Research, Americans are putting aside their credit cards and using debit to avoid incurring more debt.

According to the report, total payment volume for debit cards surpassed credit-card volume for the first time in history during 2009 and will continue to eclipse it in 2010. At the same time, Visa Inc., the world’s biggest payments network, reported that their total payment volume for debit cards increased by 7.9 percent in 2009 to $883 billion and credit-card volume declined by 7.3 percent to $764 billion. Volume for debit cards at No. 2 MasterCard Inc. rose by 5.8 percent and 2.8 percent for Discover Financial Services.

Purchase transactions generated by credit and debit cards in the U.S. totaled more than 27 billion from Jan. 1 through June 30, according to the Nilson Report, and debit-card purchases accounted for 65 percent of all sales, up from 62.3 percent, the Nilson Report said.

Prepaid and gift cards might also become more popular if the recent regulations lead to the end of free checking, and increased fees. Card issuers will market these cards to consumers who don’t have bank accounts as well as college students whose parents will welcome these cards because of their defined spending limits. The Javeline report predicts that the use of prepaid cards will increase to 9.3 percent of total online retail purchase volume in 2014 – up from 5.8 percent in 2009.

There seems to be a school of thought that younger people favor debit over credit because of the immediate nature of making a payment, which could mean that we are actually seeing the beginning of a cultural shift away from the “buy-now-pay-later” mentality that I’ve been complaining about for so long. This will mean, in terms of financial education, that we will need to focus more on telling kids to be aware of how much money they actually have to spend and to bring back those old-school notions of budgeting and differentiating between needs and wants.

Of course, this cultural shift could mean a slow, painful economic recovery for our country. If we’re able to hang on however, we’ll all be better off in the future.