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Brazil middle class loves to spend

News, 06 February 2015

SAO PAULO: Some 70% of the population of Brazil see themselves as middle class and they enjoy spending their disposable income, and more, a new report has said.

In Mapping the Mindset of Brazil's Not-So-New Middle Class Consumers, the Sao Paulo office of consulting firm McKinsey considered how this group – which is bigger than the combined populations of the UK and France – has settled into a new lifestyle enabled by a decade or more of economic growth.

Consumption plays an important role, as it is seen as a proxy for social and financial well-being. Shopping is a popular leisure activity and almost half (46%) said that this was one of the best ways to pass time with their family.

And when McKinsey asked middle class consumers what they would do with additional income, most of them said they would spend it.

In a sense they already do that as the report noted that "across the board, Brazilian consumers spend more than they put away". Overdrafts are run to the limit and only the minimum monthly payment is made on the credit cards which are possessed by 61% of middle class consumers.

This is partly because of poor financial education. "Cost perceptions seem to be influenced not by the interest rates charged but by the size of instalments," the report noted.

So loans for houses and cars are regarded as expensive, even though they have the lowest interest rates, while credit cards are seen as the least expensive debt option, despite carrying the highest interest rates.

Not surprisingly, some middle class consumers run into trouble. Yearly interest and debts payment now account for 21% of the average middle class family's income, compared to 14% in Chile and just 10% in the US.

As a result consumers are having to rein in the wilder excesses of their spending with upscale packaged goods the first category they would choose to give up, followed by car replacement or purchase.

But even if consumption slows, McKinsey said it would remain "a defining characteristic" of Brazil's middle class and suggested that marketers would have to constantly monitor areas of growth – whether by geography, category or channel– and then adapt their go-to-market strategies accordingly.

Data sourced from McKinsey; additional content by Warc staff