Smartphones have been changing our behaviour. We are now available at anytime and anywhere, but we are also doing much more online — including spending money. However, in doing so, how many of us look beyond the consequences of our actions? One result of making secret purchases online could be the end of our relationships. We take a look at some important questions to consider about credit-card behaviour.
1 Is your phone adding to your bill?
Popular smartphone games such as Candy Crush Saga offer the option of buying extra moves to finish a level. While the original game may be free to download, it is the in-app purchases for extra lives or tools that make money for their manufacturers. Candy Crush Saga makes $875,000 (Dh3.2 million) from iOS purchases in the US daily, according to Think Gaming, developers of freemium models for mobile games.
Much of that revenue comes from credit cards linked to App Store accounts. However, while financially aware adults may be tracking the money they spend on these apps, in the hands of their children, such apps can generate huge bills. The BBC reported recently how the England rugby player Sam Vesty’s sons ran up a £3,200 (Dh18,883) mobile bill by buying mountains of food on a virtual farm game.
The solution, say experts, is to restrict in-app purchases with a password or to unlink the card from the account and to use iTunes vouchers instead. Martin Lewis, creator of the personal finance website Moneysavingexpert.com, says, “Don’t trust these companies to look after you, you need to do it yourself.”
2 Are you spending in secret?
One in ten Britons split or divorced from their partners because of credit-card purchases, according to a survey released last month by price comparison website Moneysupermarket.com. Such hidden purchases are being made because cardholders either don’t want to anger their partners or believe their partner wouldn’t approve of their spending.
Sixty percent of the women surveyed confesed to hiding credit-card statements from their other half because of a guilty conscience. The poll, carried out in the UK, found that women spend nearly £100 less each month than men.
Clare Francis, Editor-in-chief at Moneysupermarket.com, says: “Clearly some people keep the amount they spend on their credit card close to their chest, which is not necessarily an issue as long as they are honest with themselves and keep on top of their bills. However, secret spending can cause relationship problems — particularly if it is on non-essential items — and with budgeting so important for many households, this isn’t really surprising.”
3 Do you splurge on luxury?
If so, ask if you can really afford it.
A Standard Life poll of 200 Western expatriates in the UAE found them to be less prudent than their counterparts in Hong Kong and Singapore. Ninety-seven per cent admitted to splashing out on luxury items, compared to 47 percent and 51 percent respectively.
In general, people use their credit cards equally for luxury items and for essentials such as groceries and utilities, Moneysupermarket data shows. Surprisingly, it is the older generation that is more frivolous with their credit cards and more likely to splash the cash on material goods, with 64 per cent of those aged over 55 years stating they use their credit card to buy clothes and shoes, versus 38 per cent of 18-to 24-year-olds.
“With so many great credit card offers available — zero percent purchase periods, cashback and reward cards — it can make sense to put your spending on plastic. However, this all assumes you can keep up with your monthly repayments, ideally paying your balance off in full,” says Francis. “One of the worries about people who spend in secret is that they do so because they know they can’t really afford it and in the long run, it just makes things worse as they can end up saddled with debt and with relationship problems. No pair of shoes is worth that!”
4 Are you using your card to service your loan?
In July, the UAE-based finance comparison site, Compareit4me.com reported that the number of people making debt repayments using a credit card is increasing. In a survey of consumers across the country, 20 per cent admitted to paying loan instalments with credit cards.
Credit is now readily available to UAE residents and with weekly calls from banks, many said they couldn’t resist taking out new cards or loans when offered. However, since credit cards carry the highest form of interest — up to 36 per cent per year — consumers using cards to pay off car or home loans are simply digging themselves into a deep financial hole.
5 Do you pay only the minimum due each month?
Easily available credit in the UAE also means many people accumulate more debt than they can afford. In the Compareit4me.com survey, 37 per cent of those surveyed said they had three or more credit cards, and over 50 per cent of those with three cards or more said they had used over 90 per cent of their available credit. Shockingly, 42 per cent of those who answered the survey told Compareit4me.com that they only made the minimum payment on their card each month — a huge issue for those in financial difficulty. It means you are only paying the interest, which means that the debt never decreases.
Oprah Winfrey’s personal finance advisor, Suze Orman, says paying only the interest lengthens the tenor of the debt. “If you owe a credit-card company $5,000 at 18 per cent interest and all you do is pay the minimum each month, it will take you over 30 years to pay it off,” she writes.
Tom Davies, Operations Manager at Compareit4me.com, says the survey indicated that many people were accumulating debt quicker than they could afford. “Credit can be and often is a positive thing but only when used responsibly. Anyone considering credit facilities should think carefully about the monthly repayments and the total value of the debt,” he says.
6 Do you shop at lunchtime?
It may be fun to indulge in some retail therapy on your phone during your lunch break. However, doing so over an unprotected network puts you at a fraud risk. Carrying out financial transactions or using credit cards on public Wi-Fi can give identity thieves the information required to hack into your account and run up bills for items you will have to pay for.
Another danger is that from fake wireless networks that impersonate legitimate Wi-Fi hot spots, Jennifer Fischer, Head of Americas Payment System Security, Visa, writes on the provider’s website, “Unless you’re hyper-vigilant about using secure networks and hack-proof passwords, someone sitting at the next table — or halfway around the world — could be watching your every move online and stealing valuable personal and financial information off your device,” she writes.
According to security provider Kaspersky, 33 per cent of people in the UAE use no protection at public Wi-Fi hot spots.
“The Middle East needs to toughen up when it comes to protecting its smart devices, and there has to be a much greater awareness of the consequences, whether it is identity theft or a full-on cyberattack across an entire company’s network,” says James Ryan, Chief Privacy Officer, AnchorFree, makers of Hotspot Shield, a VPN app.
A general rule of thumb is to avoid making payments over public internet networks — unless the site is encrypted. A secure site is usually indicated by the appearance of a tiny lock in your browser’s address bar.
7 Is your card the best for you?
With more than 50 banks in the UAE, each with several offerings, there are many cards to choose from. When considering a credit card, it’s a good idea to shortlist a few options before making a decision. Most importantly, consider what the interest rate offered is. A high rate may negate potential benefits gained from using the card. Another factor to consider is taking a card with the bank where you have your salary. You are less of a credit risk and likely to get better terms.
Also deliberate on whether you will pay the bill in full each month or carry a balance – even for a short time. In the former case, the interest rate doesn’t really matter, while in the latter case, you would be looking for the lowest possible interest rate. If your card gives you restaurant rewards but you don’t like to eat out often, you may want to consider a different option.
“There are so many cards out there,” writes Howard Dvorkin, author of Credit Hell: How to Get Out of Debt, “People have to sit down and think about what’s important to them.”