We have crossed a major psychological frontier in personal finance: It is now acceptable to pay for groceries with your credit card.
“For years, people have paid cash for groceries and drugs,” said Lynda Lovett, a principal at the research firm MarketSense Inc. “We’re seeing a shift now toward using credit cards.”
Judging by our credit card use, the recession is a distant memory. In its most recent annual survey of card usage patterns, MarketSense found that people are spending more on their cards, they’re carrying more cards in their wallets and they’re losing their inhibitions about using cards to pay for staples. So much for the austerity kick that was supposed to have emerged from the scary days of 2008-09.
There is some good news here – 59 per cent of the 5,051 people who participated in the November, 2010, survey said they usually or always pay off their monthly balance in full, up from 53 per cent in the previous year.
The survey results also suggest cardholders are taking a tougher, more analytical approach to card spending that emphasizes rewards.
“People are getting smarter,” Ms. Lovett said. “Plus, the industry has taught cardholders that if they are going to use a card, they might as well be collecting a reward.”
MarketSense documented the growing acceptance of using credit for groceries in two ways. First, it asked people whether they agreed somewhat or strongly with the statement: “I don’t like using credit cards for essential purchases like groceries.” Forty-two per cent said yes this past year, down from 50 per cent in 2009.
MarketSense also asked whether people were using their cards more often at grocery stores, drugstores or gas stations in order to earn reward points. Again, 42 per cent said yes (the question wasn’t asked in previous years).
Just Pay It Off
Using a credit card to pay for groceries is a totally valid strategy for building points, as long as you are able to pay your bill in full every month. If you don’t, then the interest that applies on your card balance will more than offset the dollar value of your rewards. That’s a distinction that seems to elude some heavy duty card users.
“People often come in here owing tens of thousands of dollars and their concern is, what’s going to happen to my points?” said Laurie Campbell, executive director at Credit Canada. “I mean, they’re not going to be able to fly anywhere – they have no money.”
Ms. Campbell’s overall take on using a credit card to pay for the everyday stuff that used to be paid for with cash? “People may go into it innocently, but it can lead to mismanagement if they’re not very careful about how they use credit.”
Rewards
Some credit card reward programs promote spending on staples by upping the benefits you can earn. Examples include:
- CIBC Aerogold Visa: Pays 1.5 points for every dollar spent on groceries, gas and drugstore items, compared with 1 point for other purchases.
- Bank of Nova Scotia Momentum Visa: Pays 2 per cent cash back on gas, groceries and drugstore purchases, compared with 1 per cent on other purchases.
- MBNA Smart Cash Platinum Plus, a no-fee card (unlike the two previous cards) that pays 3 to 5 per cent cash back on qualifying gas and grocery purchases.
I asked people on my Facebook page about paying for groceries with credit cards and found that there are quite a few people who do it religiously. An excellent tip that emerged in the discussion: Pay off a grocery bill charged to your credit card as soon as you get home after shopping, or within the next day or two.
The MarketSense survey found that travel remains the most popular type of credit card reward, but the number of people choosing cash back is on the rise. Ms. Lovett said this trend reflects a realization by some people that while they may aspire to travel rewards, they’re more likely to get tangible benefits from a cash-back card.
Another up-and-coming category is the card with rewards that lower the price of gasoline. MarketSense found that more and more people are carrying these cards as a backup to their main credit card.
People reduced the number of credit cards they carried during the recession, but that trend is over. MarketSense found people had an average of 2.6 cards in 2010, up from 2.4 in 2009. Average card spending reported by survey participants rose to $912 a month, up from $797. No word on how much of that green was spent on milk, bread and lettuce.
Best in Class Rewards
Here's a list of reward credit cards chosen by MarketSense as being the best of their type.
Travel
BMO Gold Air Miles MasterCard, TD, CIBC and RBC Visa Infinite, American Express Platinum Air Miles
Rationale: Valued rewards.
Retailer Rewards
PC Financial MasterCard
Rationale: Compelling value proposition, exceptional loyalty scores.
Low/Variable Rate
ScotiaLine Visa
Rationale: Valued mechanism to manage cash flow.
Gasoline
Citi Petro-Points MasterCard, Canadian Tire Gas Advantage MasterCard
Rationale: Meaningful reward, value immediately reinforced at the pump.
Cash back
TD Rebate Rewards Visa, American Express Costco Cash Rebate
Rationale: Cardholder spending levels directly reinforce value of reward.
Car Purchase
Citi Driver's Edge MasterCard
Rationale: Generous and flexible value proposition.
Source: MarketSense Inc.
