San José, Costa Rica, since 1956

You Might Say, ‘I Owe It All to My Mother’

Marcela Cordero saves money in a piggybank all year for one special occasion: Mother’s Day, which Costa Ricans celebrate today as a national holiday.

This year, Cordero spent just over ¢51,000 ($93) buying her mom a microwave – a serious expense for the 27-year-old, who makes about ¢325,000 (about $591) a month working at a store that sells school uniforms.

She saved diligently and paid cash for the gift. Having once found herself in over her head with a credit card, Cordero has since sworn off plastic.

“It’s the interest rates,” she said.

But while Cordero said she would rather buy a less expensive gift than pay with credit, an increasing number of Costa Ricans are turning to plastic to fudge their budgets in a tightening economy.

“In the past, having a credit card was something for people with more money. Now their use has generalized, and anybody can have one,” said Oswald Céspedes, an associate at the Académia de Centroamérica, a social sciences think tank. “There’s a danger associated with it because a lot of people don’t know how to use them efficiently.”

According to the Costa Rican Banking Association, total debt on active credit cards rose by 55 percent between March 2007 and March 2008 – increasing from ¢14.6 billion ($26.5 million) to ¢22.6 billion, or $41 million (TT, May 23).

Ticos’ urge to splurge on plastic has been partially driven by falling interest rates. As the U.S. Federal Reserve cut its rates in hopes of stimulating a stumbling U.S. economy, interest rates here followed suit.

Those economic problems now seems to be rippling through Costa Rica, and Ticos today are facing record inflation, soaring food and gas prices, and a currency that has fallen dramatically against the dollar.

To make things worse, credit card interest rates are on the rise. A recent study produced by the Economy Ministry (MEIC) published going rates at various banks. Banco Nacional’s Classic Visa card’s annual interest rate was 23 percent, while Credomatic’s Classic American Express’ was at 43 percent and HSBC’s Standard Mastercard’ was 48 percent.

Now enter Mother’s Day, a holiday celebrated here with nearly as much spending vigor as Christmas. Department stores, restaurants and businesses across the country roll out specials.

Eduardo Córdoba, marketing manager at Gollo, one of Costa Rica’s leading appliance and electronic chains, said Mother’s Day is “one of the two most important seasons of the year. Take a normal month, and multiply it by two.”

But with fiscal belts tightening, the question is, just how far into debt will Ticos go this year to please their moms?

At Gollo, 80 percent of purchases are financed with in-store credit, Córdoba said, with fixed interest rates, few requirements and low monthly payments. The store is an important alternative to credit cards, he said.

“Unfortunately, our consumers have fallen into the credit card trap, and credit cards are becoming a financial problem,” Córdoba said.

Céspedes, of the Académia de Centroamérica, said many Costa Ricans make the mistake of using credit cards to make purchases outside their budget.

“Say I’m buying a plasma-screen television for my mother, and in the heat of the moment, I don’t care about getting into debt.

Then I get the bill and maybe I can’t pay it all and I pay the minimum, leaving part of the debt floating,” Céspedes said. “With average interest rates somewhere around 45 percent annually, that’s very high. It can be the beginning of a snowball effect that can run right over you.”


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