Latest Posts
December is a great month: There are tons of great holiday parties, it’s socially acceptable to drink copious amounts of hot chocolate, and it’s that special time of year when you feel like you probably just spent all of your money. Between gifts for everyone, travel expenses, or buying all the fixings for that massive Christmas Eve celebration you host every year, it’s hard to minimize all of the added expenses during this time of year.
There are a million articles out there that will tell you how to spend less at Christmas, where the best deals are, and how to save money this holiday season by crafting all your gifts Martha Stewart style (Spoiler alert: You are not Martha Stewart). That’s all well and good and learning ways to save is always great, but I want to talk a little bit about the “why” component behind the need to spend so much and how we make our gift-giving decisions.
Some say this is rooted in the society we live in, based so much on consumerism and a keeping-up-with-the-Joneses mentality. While that’s certainly part of it, a lot of it comes down to just pure emotion and psychology. Our team’s Lead Consultant and Certified Behavioral Financial Analyst Daniel Haverkos elaborates on this: “It just feels good to give this time of year. There are mental and emotional factors at work within each one of us that make it challenging for even the most diligent penny pinchers to not spend a little more during the holiday season.” University of Minnesota economist Joel Waldfogel, author of “Scroogenomics,” finds that Americans spend about $65 billion on winter holiday presents every year. The reasons behind this are a little more elaborate than just blatant conspicuous consumerism. Here are a couple of the key areas that are factors in your dismal bank statements come January.
The In-Store Experience
From Thanksgiving until December 24th, going shopping is an ordeal. Retailers are trying to make sure they have the best year ever from a sales perspective, so sales associates are particularly pushy, every store is crowded, and there are glittery signs everywhere trying to convince you that the scarf you’re about to buy your mom is the Best Deal Ever. There is a lot that goes into the retail shopping experience on a normal day, and during the holiday season, it’s even more intense. First, there’s the immediate gratification you get when you buy something in a store, even if it’s not for you. Second, there’s the feeling of community you get because seemingly everyone is out doing the same thing you’re doing. Lastly, saying “no” to salespeople who are trying to convince you to buy something can be really difficult for many of us.
None of what you see around the stores during the holidays is a mistake. A huge amount of thought goes into things such as determining whether an item will sell more if it’s marked 50% off, versus “buy one, get one free”. Even if you’re not getting a deal, retailers work overtime during this time of year to at least make you feel like you’re getting one, which is really what matters to them in the end. The Wall Street Journal points out, “Retailers love to promise "savings," even though they really want shoppers to spend more. Consumers, meanwhile, often buy more than they need to get the ‘savings,’ forgetting that the best way to save money is to walk out of the store.” All the while, retailers already built this discount into their profit margin so the consumer psychology behind buying things on sale is pretty off-course – stores are making money whether you’re buying discounted products or not, you’re not winning the holiday by purchasing all your gifts on sale. Take a minute to digest that statement, I know it was difficult to hear for those of you who work extra hard to find the best deals.
Why Gift Giving Feels So Good
There are a lot of reasons we give each other gifts during the holiday season nowadays: everyone does it so you would look foolish if you didn’t and giving awesome gifts can garner you some bragging rights amongst peers; but hopefully, at the end of the day, giving something to someone you care about makes you feel pretty great inside. Overall, gift-giving is the universal way to acknowledge how you feel about others and show appreciation for them. With all the winter holidays being the designated, pre-approved time of the year where essentially everyone is participating, it’s no wonder our financial sense can go out the window. Every year at this time, as we are sitting down with employees of the company-sponsored retirement plans that we serve, we hear about how people can’t increase their savings rates right now because of their holiday spending. Haverkos elaborates that, “The thought of saving more into your retirement plan, which for many people means they won’t touch that money for decades, can seem like the last thing in the world anyone with even an ounce of common sense would do at this time of year. But if we are going to succeed in preparing for a dignified retirement, we’ve got to get in the habit of saving an extra 1-2% each year and for many of us, the best time to do that is starting on January 1st.
In fact, in a 2012 Accenture survey, 40% of respondents agreed that they tend to spend less on themselves around the holidays, but only so they can spend more on buying gifts for family and friends. That’s great and all, but how much is too much? Ideally, there should be a balance between saving in order to spend during the holiday season, but also to save more for retirement in the New Year.
Holiday Spending vs. Saving
Here’s the part of the blog post where I tell you should all be saving more for retirement. I mean, how great would it be if on Christmas morning instead of having your spouse unwrap some great gift they’ve been wanting all year you just told them you increased your employer-sponsored retirement plan savings rate instead? No? That doesn’t sound fun to anyone.
Fair enough, but all the components of holiday shopping, gift-giving, and the season in general, are part of the reason saving more for your future doesn’t sound like a fun idea right now. We are not trying to stop Christmas, Hanukkah, Christmakah, etc. I know I for one would be really upset if I couldn’t look forward to spending $4.50 on a Peppermint Mocha from Starbucks at least once a week during this time of year, so I’m not advocating for this yearly holiday hoopla to end. Just be aware and prioritize! It wouldn’t hurt to read some articles like this or that, because at the end of the day, there’s little way around eschewing all the extra spending.
What you can do is think a little more about where your money is going this holiday season, if you’re making rational decisions, and if all this spending is completely necessary. Be armed and ready with a well-thought-out list of whom and what you’ll be gifting so as not to overspend. Look at your finances a couple of months out and budget a realistic amount for how much you can spend not only on gifts but on things like travel, that new outfit for New Year’s Eve, or the uptick in dining out at restaurants with friends that are bound to occur. Most importantly, look ahead to next year and think seriously about increasing your savings rate each month. We know that at times it can seem like saving your money and having a wonderful holiday season are inversely related, but with the right budgeting strategy and insight into our spending, everyone can have a happy holiday….and maybe even keep a few bucks in your pocket as we head into the new year!
Need help keeping your spending in check all year round?
