How to approach a season of excess with financial responsibility

Americans are expected to spend a record amount (between $979.5 billion and $989 billion) on holiday gifts and décor this November and December, according to the National Retail Federation. Inflation and high interest rates are important parts of the story, but there’s not much evidence that people are planning to cut back, either.

Only 1 in 3 holiday shoppers is planning to spend less this holiday season than they did during the festive period last year, according to Bankrate’s Early Holiday Shopping Survey. The most popular answer (given by 43 percent of respondents) was “about the same.” And roughly a quarter of holiday shoppers are planning to spend more.

Stubborn inflation means that many people planning to spend about the same could still end up paying more this year, due simply to price increases. This could even tip some people who plan to spend less into the spending more camp.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.

Adobe is among the many organizations projecting an increase in holiday spending this year. Its survey focuses on e-commerce, which is expected to grow 8.4 percent this holiday season – much faster than brick-and-mortar retail. For context, organizations such as the National Retail Federation and Mastercard are expecting total holiday retail sales growth between about 2.5 and 3.5 percent.

Contrary to the past five years, when the market share of the cheapest goods increased 46 percent and the share of the most expensive goods decreased 47 percent, Adobe says share of the most expensive goods will increase 19 percent this year. Sporting goods, electronics and appliances are leading the trend.

Conflicting economic signals

The past few years have represented a very strange trip for the economy. We endured all of the pandemic weirdness, of course. But even since then, the University of Michigan’s popular consumer sentiment index has remained well below pre-pandemic norms despite a host of economic data that has come in much more favorably. For instance, the unemployment rate hit its lowest level in 54 years in 2023. While it has gone up a bit since then, it’s still low, historically speaking. Consumer spending and gross domestic product have been growing and inflation is coming down without a much-feared and much-forecast recession. Yet people still aren’t feeling great about the economy, mostly because inflation has outpaced wage gains.

Normally, when people worry about the economy, they pull back on discretionary spending. But spending has boomed the past few years in discretionary categories such as travel, dining and live entertainment. That’s mostly because of a “you only live once” attitude that emerged from the pandemic. Inflation be darned, people are splurging on these experiences anyway. Although that may be starting to change.

If you’re in a hole, stop digging

Half of credit cardholders carry debt from month to month, Bankrate found, which is the highest percentage since early 2020. Among them, 6 in 10 have been in credit card debt for at least a year (up 10 percentage points from three years ago). People often get into credit card debt for practical reasons, such as medical bills, car repairs and day-to-day expenses. If you can, try not to make the situation worse by splurging on holiday gifts.

More than a quarter (28 percent) of holiday shoppers say they’re stressed about these expenses and the same percentage says holiday shopping will strain their budgets. If either describes you, it’s clear that you have plenty of company. Consider speaking up and asking what your family members and friends think about buying fewer gifts this year. Could you only buy for the kids? Could you each pick one adult’s name at random and only buy for that person instead of the entire extended family?

You might get a lot of heads nodding in agreement. While it may sound corny, isn’t it the thought that counts? And couldn’t your presence together be the present?

Another way to celebrate without busting your budget – you did set a holiday budget, right? – is to give homemade gifts. Are you a good baker or crafter? If so, use those talents to create holiday presents instead of spending money at the mall or on your favorite e-commerce site.

If you are going to be shopping, do your best to avoid unnecessary impulse buys by setting limits ahead of time, waiting 24 hours before making an unplanned purchase and unlinking your credit and debit cards. Sleeping on it and having to find your card may be effective deterrents. Consider the total cost of ownership, too. Don’t fall into the buy now, pay later trap. It’s easy to trick yourself into thinking a $200 purchase is just four easy payments of $50, but those can add up, particularly if you’re already overextended and in credit card debt.

And when it comes to holiday activities, there are tons of low-cost ways to enjoy the festive period. Driving around the neighborhood looking at holiday light displays is a fun way to get into the spirit and entertain the kids without spending more than a little gas money. Other budget-friendly options include family movie nights, home-cooked dinners with friends and attending local holiday craft fairs and markets.

The bottom line

I’m not saying that you can’t have any fun, but I am hoping that more Americans will celebrate the holidays without lugging a mountain of pricey credit card debt into the new year. Consider this: If you finance $1,000 worth of holiday goods and you only make minimum payments at the average credit card rate of 20.51 percent, you’ll be in debt for 40 months and you’ll end up paying about $400 in interest. And that’s on top of the significant debt loads many American households are already carrying.

Rather than still facing this year’s holiday bills in 2028, deploy these and other money-saving strategies to enjoy the holidays without the debt hangover.