Beware of the costs of credit while spending: Inquirer

People crowding a street market to shop ahead of the Christmas holidays in Manila on Nov 30, 2021. - AFP

MANILA (Philippine Daily Inquirer/Asia News Network): A survey released last week indicated how household spending in the Philippines is expected to evolve: Consumers are planning to buy more nonessential items in the next three months.

Data from the Consumer Pulse Study for the first quarter of 2022 conducted by the local unit of American consumer information and insights company TransUnion revealed such shift in spending priorities after the Philippine economy further reopened early this year.

"More respondents said they'll increase their spending on retail shopping, discretionary personal spending, retirement funds and large purchases," the study said, adding that each of these categories saw a five-point increase from the first quarter of 2021.

"From optimism about improved household incomes to anticipated increased spending in key areas, Filipinos are increasingly bullish about our recovery from the global pandemic," noted Pia Arellano, president and chief executive of TransUnion Philippines.

The study showed that 36 per cent of Filipinos saw their household incomes improve in the past three months while 75 per cent expected this to increase further over the next 12 months. Given this-plus the eagerness to move on from the pandemic-Filipino consumers are raring to spend more on retail shopping and "large" items, such as cars and appliances, the survey showed.

A growing number of younger Filipino consumers, or the Gen Z, are also expected to pay for new purchases via credit, the study showed. TransUnion added that 57 per cent of those with a "very good" debt rating said they plan to apply for new credit.

The company surveyed 1,078 adults in the Philippines across all major age groups to get information and insights needed for a comprehensive understanding of the changing attitudes and situation in the country.

Psychologists believe the desire to buy things or travel for leisure after a long period of deprivation is normal human behavior. It satisfies that bottled up craving for items or activities that were missed over time.

Such is the case during the Covid-19 pandemic that began two years ago. Leisure travel virtually came to a halt, entertainment halls and physical shopping stores were all but closed.

As quarantine restrictions started to ease around the world, more establishments-shopping centers, bars, travel agencies-have reopened.

Consumers restricted to their homes for months are suddenly filled with excitement, with many going on a shopping spree like never before. Leisure travel also picked up quickly, giving hope to resorts and airlines severely battered by the health crisis. This is where caution must come in.

The Philippine economy is definitely not out of the woods yet. The pandemic is still here, despite the improving Covid-19 numbers and relaxed quarantine levels across the country.

The ongoing war between Ukraine and Russia continues to roil global oil and agricultural commodities markets, and the big spike in local petroleum prices is a manifestation of this. As oil prices rise, the cost of other basic commodities-for example, food and electricity-will follow suit.

It's true, as life insurance firm Pru Life UK said in an article on well-being titled "How retail therapy can help you cope," that psychologists have determined that shopping produces positive feelings for those who indulge in it. The reason, it continued, is that shopping activates the pleasure centers of the brain to release the "feel good" hormone called dopamine, while another psychological benefit is that "it serves as a form of relaxation, entertainment, and escape."

The caveat, however, is that while it may have its benefits, nonessential spending can also affect an individual's financial health. For instance, uncontrolled spending has been a major reason for amassing credit card debt.

"There's no harm in shopping to feel good but keep your purchases reasonable and within your means. Use credit cards carefully. If you notice a tendency to be too fast and loose with your credit card use, don't bring them every time you shop.

"Commit yourself to leaving your credit cards at home unless you really need them. It's easier to control spending when you are paying in cash," advised the Pru Life article. In fact, credit cards should be used for emergency purchases of essential items, not for aspirational things, such as expensive smartphones or first-class recreational travel.

Consumers should think twice before indulging in retail therapy. There's nothing wrong in satisfying one's desires. However, it is important to set one's priorities right when it comes to spending.

For nonessential items, using debt to pay for these stuff often ends in disaster-the inability to repay mounting debt. Avoid the temptation of how easy it is to simply charge purchases to one's credit card.

It really is not worth it to have that brief satisfaction that retail therapy brings. A person is better off saving-or investing-that extra money they have today for the rainy days that will surely come.