Why Are So Many More Shoppers Buying Gifts on Credit This Holiday Season?

Paying with plastic is up 8% over last year

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Economists have sounded a note of (cautious) optimism at the approach of the holiday shopping season. With the unemployment rate low (4.1 percent in October, per the Bureau of Labor Statistics) and consumer confidence the highest it’s been in nearly 17 years, Americans are expected to spend liberally.

Maybe too liberally.

More than half of holiday shoppers (56 percent, in fact) admit that debt is the way they now finance their gift buying. That figure is among the results of a just-released study from personal-finance site NerdWallet, which partnered with Harris Poll to interview 2,000 American consumers 18 and older. While the total amount that each shopper spends on presents has stayed roughly the same, at about $660 per person, the majority of shoppers will pay for those gifts with a credit card. (NerdWallet queried respondents about their 2016 shopping behavior, as most of this year’s holiday shopping has yet to take place.) What’s more, the 56 percent of consumers who pay with plastic represents an 8 percent increase over the previous year, when 48 percent used debt to finance purchases.

But why now? According to NerdWallet consumer savings expert Courtney Jespersen, it’s very likely a combination of factors. Among them is the steadily growing popularity of buying things online, which hit its highest level ever last year, according to the National Retail Federation.

With the ubiquity of search and the ease of technologies like Amazon’s one-click checkout, buying goods on the web has become so easy that “you buy more than you set out to buy,” Jespersen said. And since credit is the most preferred payment method for online transactions—47 percent of shoppers pay this way, according to a 2016 study from Total System Services—it follows that a good many of these purchases wind up on the plastic.

Another reason is the aforementioned confidence level. After a long period of recessionary anxiety, more Americans are comfortable with discretionary spending, even if they don’t happen to have the cash in their pockets to pay for it at the time of purchase.

“People are feeling a little more confident in the economy, so they’re spending more—and being left with the debt,” Jespersen said.

Even so, the debt picture is complex. More holiday shoppers are paying off their holiday debt in the first statement of the new year (44 percent versus 39 percent the year prior). Which raises a critical question: If shoppers have the money to pay off their holiday credit-card debt in full, why are they opting for debt in the first place?

Jespersen suggested that many consumers are using their credit cards to take advantage of the slew of rewards points and cash-back offers out there. If done properly, she said, using plastic can be a part of savvy budget management.

Still, it’s clear that a sizable portion of the population is only going further into debt because of their holiday indulgences. In August, the Federal Reserve Bank of New York announced that total household debt for the second quarter had not only grown by $114 billion to a total of $12.84 trillion, but that credit card debt was a contributing factor. Year over year, Americans’ credit-card debt grew by $55 billion and now stands at $784 billion in total. In a prepared statement, New York Fed svp Andrew Haughwout blamed the climb to “loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards.”

But no matter how a shopper pays for those holiday gifts, Jespersen advises keeping the tally under control by making a shopping budget and sticking to it. But, well, good luck with that. NerdWallet’s study found that 44 percent of consumers failed to stick to their budgets, and 27 percent didn’t bother to create one in the first place.


@UpperEastRob robert.klara@adweek.com Robert Klara is a senior editor, brands at Adweek, where he specializes in covering the evolution and impact of brands.