Should I spend or should I save?
With our social lives on hold, holidays postponed, and many shops shut, there hasn’t been much to do...
Early data suggests that US online shoppers spent a collective $9 billion* on Black Friday. Apparently not satisfied with what had already been ‘added to cart’, they spent a further $10.8 billion on Cyber Monday, making it the single largest day for online sales in US history*.
I famously do all my Christmas shopping on Black Friday and Cyber Monday, to make the most of the deals. However, this year I did less. Instead, I’ve spent a lot of time researching small businesses or local shops which are struggling due to continued rolling lockdowns. I’ve been more deliberate with my spending and relying less on Amazon Prime to come through with next day delivery. And it seems I’m not alone wanting to support the little guys. Encouragingly for independent stores, ‘Small Business Saturday’ was also popular, with firms experiencing a near 300%* increase in sales compared to a normal day.*
“Happiness is not in money, but in shopping” — Marilyn Monroe
Regardless of where or how you are shopping this year, you still need to pay for it all. And with contactless payments rather than cash being used in the pandemic, it’s likely many will be using a credit card for their purchases.
If used correctly, credit cards offer an easy and affordable way to spread out expenses month by month. But if used incorrectly, debt can quickly spiral out of control.
At the beginning of 2020, the total credit card debt in the UK was £72.1 billion**. This is roughly £2,592 debt per household. With credit card interest rates around 20% for many, a balance of £1,000, unpaid over the course of a year, soon becomes £1,220***. After two years it’s a debt of 1,490***.
As the proportion of individuals with financial debts peaks in the 25-34 age group it’s important that millennials and Generation Z understand compound interest, annual fees and the common myths associated with credit cards as early as possible.
While credit card interest rates may be bad for individuals, there is obviously money to be made from our plastic spending habits. I personally have an infinity for my American Express card and its rewards programs. The largest holding in Ninety One Global Special Situations^, manager Alessandro Dicorrado told us earlier this year how “the average expenditure on an Amex credit card is approximately four times higher than the average on Visa or Mastercard.” While I hate to think it’s true, I’m more likely to make a large purchase if I can use my Amex and get the points!
Visa and Mastercard, however, are more widely used by my peers. Both are holdings in Guinness Global Innovators^^ whose managers recently commented on the impact restrictions to international travel is having on the companies. “Both businesses derive high-margin revenue from cross-border payments which currently make up 26% and 21% of Visa and Mastercard’s total gross sales respectively,” they said. “While we acknowledge this poses a near-term drag for both businesses, we continue to believe both companies are robust enough to weather such challenges whilst benefiting in the long-term from the continued shift towards a cashless society.”
Read more about the shift to a cashless society
Mobile payments played a large part in this year’s Black Friday and Cyber Monday spending, and with the worry of cyber fraud, many will have chosen to pay for goods via PayPal. A holding in the aforementioned Guinness Global Innovators, AXA Framlington Global Technology and Jupiter Financial Opportunities funds^, PayPal launched its electronic money transfer service back in 1999.
The pandemic certainly hasn’t dampened our reliance on online shopping and credit cards – the opposite in fact. Ultimately, investors and consumers alike can stand to benefit from the potential of this multi-trillion dollar industry.
*Source: Adobe, 2020 Holiday Shopping Trends
**Source: My wallet hero, credit card debt in the UK: statistics for 2020
***Source: www.thecalculatorsite.com, £1,000 with 20% annual interest rate calculated monthly for one year
^Source: fund factsheets, 31 October 2020
^^Source: fund manager commentary, November 2020