The Real Reason the Holidays Are So Pricey (It’s Not the Gifts)

  • By Catey Hill, MarketWatch
  • November 20, 2014

holiday spending

Every year, thousands of Americans blow their budgets come December — and while they may be tempted to blame that on the dough they fork over for gifts (ahem, office Secret Santa), that explanation is only a small part of the reality.

Americans put far more on their credit cards in December than they do in any other month — more than $130 billion — compared with less than $100 billion in February, and this year, a number of studies show, they’ll probably be spending even more.

While some of this spending is, of course, on gifts — a Nielsen survey found that Americans plan to spend 10% more on gifts this year than last and a YouGov survey noted a likely 8.7% uptick — plenty is spent on other things (many of which we don’t tend to budget for).

According to a new study from Deloitte, Americans plan to spend 13% more this year ($1,299) than they did last year during the holidays. While a significant part of this spending will be on gifts (roughly $458), that’s still only about one-third of our holiday spending. “Most people think only about gifts when they make their holiday shopping budget, but there are many other expenses that get overlooked that can send your spending soaring,” says consumer savings expert Andrea Woroch.

When it comes to holiday-related spending, the fastest growing areas of spending are non-gift items, says Allison Paul, vice chairman and retail sector leader at Deloitte. This year, Americans plan to spend $195 on holiday parties they throw in their own homes, up 22% from last year (vs. a 13% increase for holiday spending overall), and they plan to spend 15% more than last year on attending holiday events/socializing away from home (this might include things like new clothes for an event or buying a gift for a hostess) and decorating their homes for the holidays.

Paul says these big increases in non-gift spending are thanks in part to consumers’ increased optimism this year. “During the holidays in the recession, you still wanted to put something under the tree, but you stopped buying gifts for yourself [and other holiday-related spending],” she says. Now that consumers feel more optimistic about their economic prospects, they’re willing to spend more in other areas too.

While all that spending adds up, fewer than half of Americans have a specific budget for holiday spending, the Deloitte study found — which probably explains why December spending often gets a bit out of control. Of course, controlling holiday spending is probably best done by making a budget — Woroch recommends taking inventory of the previous year’s spending to help you out with that — but here are some other ways you can save.

Cash In Rewards to Pay for Gifts
Rather than popping gifts onto that interest-bearing credit card, Mint.com spokeswoman Holly Perez recommends consumers cash in rewards on credit cards or other loyalty programs to pay for gifts. “Redeeming points for merchandise or gift cards can take up to four to six weeks for delivery so now is a great time to start,” she says. Woroch adds that you can often redeem rewards for gift cards, “which make perfect presents or can be used to offset the cost of a gift” and you can also give miles as a gift or turn them into actual products like cookware or a gadget.

Perez adds that some cards are running special promotions offering extra points during this time of year. “Find out what promotions can help you maximize your rewards,”she says. “You could get some of your holiday purchases for free when you are savvy about your credit card use.” But, of course, you must make sure you pay off that balance in full and on time or these rewards likely won’t be worth it at all.

Have a Talk About Holiday Spending With Friends and Family
“There’s no shame in telling people that this year will be a lean holiday season when it comes to exchanging gifts,” says Steve Siebold, author of the book “How Rich People Think.” Perez says that when it comes to talking to family it’s important to establish spending guidelines. “Depending on the age of your children, you can touch on how much they can spend and what they can expect … maybe even give them extra chores to earn money for holiday spending,” she says. When it comes to the rest of the family, she says you should consider a Secret Santa gift swap, making charitable donations in honor of each other, a cookie swap or organizing a gift-free potluck family dinner to save money.

Consider Layaway
Woroch notes that many retailers are offering free layaway programs this year, which while certainly not for everyone (and they come with risks), “serve as good options for shoppers who are carrying a revolving balance, don’t have a credit card and simply don’t have cash to buy the gift upfront but don’t want to miss out on the deal or want to secure the gift before it sells out,” she says. She adds: “It’s a better option than relying on a high-interest credit card and you just stash your cash toward it every week until the deadline right before Christmas — for many people, this works better than simply stashing your cash into a savings account because you are actually being held accountable for it.

This article originally appeared on MarketWatch.com and is reprinted by permission from Marketwatch.com, ©2014 Dow Jones & Co. Inc. All rights reserved.

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