GSN403: Data Analysis and decision making - Accounting and Finance Assignment Help

Assignment Task

Background

Recent statistics1 indicate that there are over 13 million credit cards in Australia as of April 2021. Consumers need the cards for a variety of reasons and banks and other institutions are keen to provide these services because of the revenues they generate. However, the Royal Commission on Banking was scathing of the practices surrounding credit cards and led ultimately to a number of changes around credit card rules – particularly in terms of assessing eligibility and credit limits.

You have recently been hired as part of the data science team for a regional bank and have been tasked with investigating your credit card system. The bank has provided you with information on 246 randomly selected customers for which they have data on a range of relevant variables from the previous year.

The Royal Commission was particularly interested in the extent to which personal indebtedness had increased through credit cards and other loans, and the social and economic disruption that this caused. From the bank’s perspective, the ability to repay credit card debt is crucial for their own bottom line, but more importantly, they recognise the social, health and welfare issues associated with credit card abuses. As a consequence you have been asked to investigate those factors which may lead to excessive debt or inability to manage card repayments.

1. In the first instance you have been given information on 10 variables for each of the customers. In addition to their customer number you have been provided:
2. Balance – the average monthly unpaid credit card balance ($)
3. Income – the average monthly household income from all sources ($)
4. Spend – average amount spent using the credit card per month ($)
5. Loans – the average amount paid servicing other loans per month ($)
6. Card – level of card issued (Blue for lowest level, Gold for mid-tier and Platinum highest)
7. Gender – gender of the card holder restricted to Male or Female
8. Status – household income arrangements defined as couple or single income earner
9. Children – Number of children in home
10. Education – highest level of education of card owner (High School, Diploma, Bachelor or Postgraduate)
11. Debt Stress Index (DSI)– A measure used by the bank to identify those customers in debt stress

Your Task

Your role is to analyse the data as thoroughly as possible and provide any recommendations to the bank on issues including what factors seem to have the biggest impact on credit card debt; to what extent is overall debt an issue among your customers and are the correct type of cards being issued to customers. In considering these issues carry out the following tasks:

1. Fully describe the data related to Average Monthly Unpaid Credit Card Balance to get an understanding of the problems associated with card debt. Use appropriate graphs and statistics to identify important characteristics and explain your results in no more than 150 words.

2. In addition to just credit card indebtedness, the coronavirus pandemic and recent inflationary pressures have meant that overall indebtedness is becoming an issue and the bank is concerned that it may be a problem for them. You have been asked to conduct four tests to help determine the extent of the issue:

a. Prior to this last year, 15% of all customers had been fully paying off their credit cards each month (i.e. variable Balance was zero (0)). The bank is concerned this has now fallen. Conduct a test to see if the proportion of people fully paying off their cards has decreased.

b. The bank calculates a Debt Stress Index (DSI) which is defined as Average Monthly Unpaid Credit Card Balance + other monthly loan payments expressed as a proportion of Average Monthly Income

If the DSI is more than one third (0.333) the household is said to be in stress.

To look at the role that Income plays in Debt Stress conduct a test to see if the average of the income for customers in distress is less than that of customers who are not stressed. (Hint – you will need to define which customers are in Stress and which are not and then work on the averages of those two groups).

c. Having identified which customers are in distress and which are not, the bank is interested in whether or not the type of credit card is a factor. Test to see if the type of credit card is independent of whether or not customers are in distress.

d. Finally, the bank is also concerned that while the overall level of indebtedness has increased along with inflation, household incomes have not been increasing to keep pace. Twelve months ago the average monthly household income was $9350. Test to see if average monthly household income has increased.

3. Importantly the bank is hoping to identify those factors which impact Average Monthly Credit Card Balances. Using a stepwise regression build a model to identify which factors impact monthly balances. Once you have built the model comment on the usefulness of it and interpret any information on the resulting model. Could it be used to forecast the likely balance for a male customer with a postgraduate degree who has a Gold Card, lives in a household with a single income of $10,000, spends on average $8000 per month on their card, and services other loans of $1500 per month and has one child?

4. Finally, In no more than 250 words write a report in non-technical language outlining what you have learned about indebtedness among customers at this bank. Highlight any issues you believe the bank should consider in particular and those that do not seem to be an issue for them.

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