Page last updated at 11:25 GMT, Monday, 16 February 2009

Are our spending habits changing?

Analysis
By Kevin Peachey
Personal finance reporter, BBC News

Person carrying shopping bags
By far the most frequent use of debit cards is in supermarkets

Each week it is likely you use your debit card more often than you have hot dinners.

But what will you be spending that money on? In all likelihood, it will be those hot dinners - as spending in supermarkets is by far the most frequent use of debit cards in the UK.

Some 1.5 billion purchases were made using a debit card in supermarkets in 2007, according to the UK payments association Apacs.

That was much higher than the 507 million transactions in service stations and 236 million purchases with debit cards in department stores in 2007. Restaurants were ranked fourth on the list.

By next year personal spending by debit card will exceed personal spending by cash.

Circulation

The number of cash payments is in steady decline as we start to move to electronic methods.

The move away from cash is expected to accelerate
Apacs

Yet the amount of cash swirling around in the system is going up. Figures from the Bank of England show that banknotes with a value of 44bn were in circulation in 2008, up from 36bn four years earlier.

So what is going on?

One theory for the growing number of banknotes in the system is the rise in migrant labour in recent years, but perhaps more significant is our love of the cash machine.

The British and Irish are the heaviest users of cash machines in the EU. Every second in the UK, an average of 5,903 is withdrawn from the rising number of cash machines.

Blackpool, Edinburgh and Birmingham have most cash machines per person than elsewhere in the country, according to the latest figures.

By 2017, about 84% of all cash acquired by individuals is forecast to be paid out through cash machines.

The more we use them, the more these machines have to be loaded up with spare cash - even though we are using this cash less frequently.

Future of cash

Despite the changing ways in which we get our hands on it, the popularity of cash for actual transactions among consumers is shrinking. The number of transactions made by cash is forecast to be outstripped by non-cash payments by 2015.

Graphic showing changing methods of payments

There are three primary reasons for this: new swipe-and-go cards for small purchases, the shift to internet-based trade, and the launch of prepaid cards.

"The move away from cash is expected to accelerate," says an Apacs spokesman.

This comes as government and businesses move away from paying wages and benefits in cash. One in 10 small businesses pay suppliers in cash and 15% still pay wages in notes and coins.

But all this does not mean that we are striding headlong towards a cashless society.

Notes and coins remain popular for small payments - the average cash transaction in 2007 was 12 - and some in lower income groups have less access to a bank account or prefer to use cash as a budgeting tool.

People in Scotland and the Midlands are bigger users of cash on average than London, the South East, Wales and the West.

Cards and cheques

In the next 10 years the number of payments made by debit card is expected to soar from 4.9 billion to an estimated nine billion in 2017.

But changing technology means that a debit card might start to look very different. The data chip could be embedded in an everyday item, such as a mobile phone or a watch, instead of a plastic card.

The rise is also driven by card spending over the internet that has already risen four-fold over the past five years.

In the meantime, the use of personal and business cheques is set to fall at more than 7% a year.

This prompted the UK Payments Council to describe the cheque as being in "irreversible decline" from their peak in 1990. A growing number of household-name stores, such as Asda, Argos and Boots, as well as petrol retailers have stopped accepting cheques.

There is a striking difference between the generations when it comes to writing cheques.

"Those in their 20s don't know what a chequebook is, and those in their 30s don't know where their chequebook is," says Sandra Quinn, of Apacs.

Around three-quarters of those aged over 55 write cheques, whereas two-thirds of people aged under 25 never write them.

The concern for David Sinclair, of Help the Aged, is that the elderly should be offered an appropriate alternative if the cheque is mothballed.

"There needs to be a financial education programme making sure people are aware of the alternatives," he says.

With interest in money matters at a peak during the recession, there is likely to be a captive audience.

TOP TEN PLACES WHERE PEOPLE USE DEBIT CARDS, 2007

Location Purchases (millions) Value (£ billions) Average Transaction Value (£)
Supermarkets 1,532 47 30.34
Service stations 507 12 24.00
Department stores 236 7 30.27
Restaurants 204 5 26.89
Family clothing 201 6 28.40
Chemists 165 3 15.83
DIY stores 150 6 42.40
Financial services 106 26 246.09
Telecoms 104 2 19.70
Railways 100 2 23.28



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