Credit cards are not the main component that generates debt for Costa Ricans. In addition, people who receive less income have few real options for access to credit from regulated financial entities. This emerges from the second delivery of the survey results of “Indebtedness of Costa Rican households”, carried out by the Office of the Financial Consumer (OCF).
The study was carried out during the final months of 2020, and covered a total of 1,200 people between the ages of 18 and 65, with a sampling error of 2.8% and was applied throughout the country.
“The survey seeks to measure the reality of indebtedness in Costa Rica. In the first installment we highlighted that people had debts in a broad sense; on this occasion, we will break down the behavior of the Attic regarding the type of debts, the attitudes they assume towards them and the handling that is given to the money”, explained Danilo Montero, general director of the OCF.
Credit cards are not the first
Regarding the types of debt that people in Costa Rica assume, credit cards are not the first reason for debt. This is supported by two results that the study showed: first, the type of debt according to the level of income of the people, and second, in relation to the level of commitment with respect to income for the payment of said debts.
When asked what types of credits they have, almost half of those interviewed in the group with the lowest income (less than 300 thousand colones) indicated credits from relatives or in electrical appliance stores, far from the 13% who mentioned credit cards. Even in the next income group (between 300 thousand and 500 thousand colones), the difference is that personal loans appear as a third type, any of the three doubling the importance of the cards. Only from the income group of more than one million colones, is that the cards show greater presence. But, in fact, in the two groups with the highest income, credit with associations or cooperatives, or housing loans, dominates.
If measured by the level of income commitment to pay debts, it stands out that, in the group with the least indebtedness, consumer credit, family credit and credit cards share almost the same importance. At the other extreme, in the group with the highest commitment (more than 62% of their income), what dominates is consumer credit, and in second place that of family members. It is worth mentioning that in the second group with the lowest indebtedness (between 18% and 30%), the dominant type of credit is that of electrical appliance stores, almost doubling the importance of cards.
“The survey shows that 7 out of 10 Costa Ricans have debts, but it also indicates that it is not precisely in cards as is generally thought. Even despite the number of credit cards in circulation, the survey detailed that 33% of those surveyed accept that they have, but do not use them. This means that, despite the fact that it may be an important component of debt for some people in particular, other factors have a greater weight in the indebtedness of the people,” said Montero.
Another relevant finding of the survey is that access to credit through the regulated financial system is not the same for everyone. In fact, women, people without paid work, who are in the lowest income groups (less than 500 thousand colones) and who live outside the Greater Metropolitan Area, go mainly (between 57% and 63%) to relatives, friends or co-workers.
In contrast, as income grows, people move to credit from regulated entities (up to 65%) and credit with family or friends tends to disappear. The situation is repeated by work status: when people do not have paid work, the source of credit is family or friends; There is a growing preference for credit from regulated entities (banks, cooperatives or mutuals) for private sector workers and it is the type of source that dominates by far for those who work in the public sector. For the OCF, this behavior confirms that there is a certain degree of financial exclusion, a situation that merits some public policy to close this gap. “This poses a challenge to the financial system in general, because some groups are not having access to formal credit, forcing them to seek other more expensive financing methods, limiting, for example, their possibilities of access to housing, or even affecting their productivity. The challenge of course includes generating the products and channels to reach these populations,” said Montero.
Consumer attitude towards debt
The debt survey also analyzed the behavior of Costa Ricans towards debt, based on their attitudes towards purchases and their attitudes towards the use of credit. Debtor attitudes towards purchases were measured according to four dimensions: for whom purchases are out of control; those who plan and are ordered; for those who simply consume the basics (minimalists) and for whom consumption generates pleasure (hedonists). To measure these dimensions, they were proposed phrases with which they were asked whether or not they agreed.
An outstanding fact is that in the group of those who consume for pleasure, the percentage of those who have debts is higher than at the national level, but their average level of income commitment is not that high (37%). This could be explained because, according to the survey, the group of public sector workers and people with higher incomes are those who tend to buy for pleasure, and their condition allows them to face the responsibility of payments more easily. To understand attitudes towards credit, two dimensions were proposed: those who behave with caution and reserve, and those who are rather prone to using credit.
The study identified that men and those with the highest incomes are those who show the greatest tendency to credit. For them, for example, “the use of credit allows them to have a better quality of life”, “it is an essential part of the current lifestyle”, “it is good to buy and pay later” or “a loan is sometimes a good idea ”. A relevant finding is that, in the group of those who are unemployed, 25% are rather cautious towards credit, while this percentage falls to 7% in the group of those who work in the public sector. The cautious choose to “take care of money”, “pay debts as soon as possible”, or “try to live with what you have and save.”
Money controls the life of the highest debtors
The survey of “Indebtedness in Costa Rican households” also analyzed the practices in the handling of money by people. For this, a series of phrases were proposed to the respondents, in which they had to agree or not. This made it possible to identify four groups: those whose life is controlled by money; those who are spending orientation; those careful with debts; and who are handy with money.
The most notable data is that, as the interviewees agreed that the financial situation controls their life, the greater proportion of their income is compromised. For example, “it is very difficult for them to meet unexpected health expenses”, or “they usually do not have money for gifts for birthdays, weddings, parties”. Lower income groups, private sector workers and residents outside the GAM, are the ones that most frequently indicated that money controls their lives.