‘Tis the season for consumerism. Black Friday is the dawning of a period when cash-strapped Americans descend upon retailers to buy discounted trinkets for friends and family. The stampede typically lasts up until Christmas. Bank accounts get depleted. Credit cards work overtime. Budgets become afterthoughts.
Overspending is becoming a holiday tradition. According to a new survey from SunTrust Banks, 46% of Americans feel pressure to spend more than they can afford during the holidays, up from 39% last year. Twenty-nine percent of adults also expect this year’s shopping season to be more financially stressful than last year’s, compared to 24% who answered the same question in 2014 about the previous year. Millennials expect to face more financial pressure this year than any other age group, with 42% saying they’ll have additional financial stress from the previous year.
How much do Americans plan to spend? Gallup finds the average American plans to spend $830 on gifts this year. That’s up 15% from $720 last year, and represents the highest estimate since 2007, when it hit $866. One-third of adults plan to spend at least $1,000 on gifts, while about one in five say they will spend between $500 and $999. Only 8% say they don’t celebrate Christmas or won’t be spending anything, and 7% are unsure how much they will spend this year.
Gallup notes: “Christmas spending intentions vary greatly by household income. Americans living in households earning $75,000 or more per year plan to spend an average of $1,227 on Christmas gifts this season. This drops to $786 among middle-income earners and to $460 among those earning less than $30,000. Estimated Christmas spending is also higher among households with children younger than 18 living at home than among those without children at home: $1,092 versus $706.”
Overspending on gifts is especially tempting for parents. A recent T. Rowe Price survey that sampled 1,000 parents across the country in January 2015 found 62% of parents agree with the statement, “I spent more for my kids over the holidays than I should have.” Making matters worse, 47% used credit cards, 9% dipped into their emergency funds, and 7% even tapped their retirement accounts to bring extra cheer from the North Pole.
Stuart Ritter, CFP®, a senior financial planner at T. Rowe Price, says, “It’s always tempting to splurge around the holidays, but parents aren’t doing themselves or their kids any favors by overspending. We’re all inclined to be more generous this time of year, and it’s important to be mindful of the financial trade-offs we’re making and stick to a budget that aligns with our priorities.”
“Our long-term goals, such as retirement savings and having an emergency fund, should always take priority over anything that is presented with a bow and purchased during a Black Friday sale. Kids will always have long wish lists, and it’s good for them to know that there isn’t enough money in the family budget to cover everything. Challenging them to prioritize their wants and make trade-offs is essential to helping them develop critical financial capabilities.”
You can also stay on top of your spending by tracking it with your bank’s mobile app and signing up for overdraft protection to make sure your good intentions don’t turn into regret. If you’re a responsible credit card user, make sure to maximize cash rewards and any other perks like price protection. Above all else, remember that material things typically fail to bring long-term happiness.