By Andrew Keshner
‘It’s more important to make sure I don’t have any financial stress coming out of the holidays’
Black Friday ushers in a holiday shopping season that’s coinciding with four-decade high inflation, declining personal savings rates, ballooning credit-card debt, a growing list of layoffs in the tech sector, and storm clouds signaling a recession.
Consumers are keenly aware of the money pressures while they write their gift lists, and financial professionals are no exception.
“Last year was more a splurge coming out of COVID. This year, it’s more important to make sure I don’t have any financial stress coming out the holidays,” said Jacquie Carroll, an accredited financial counselor. Concerned about inflation’s toll and looming recession worries, Carroll is avoiding the stress by changing up her holiday gift strategy, and planning to spend around half as much as last year.
Various surveys and consumer sentiment gauges show people trying to figure out how they’ll handle holiday spending. For example, nearly nine in ten consumers told Michigan State University researchers that worries about high prices and their own financial conditions would influence their spending behavior.
These financial advisers, counselors and bankers usually spend their time advising people on how to strengthen their finances. But this time they are taking a leaf out of their own pocket book.
The post-lockdown “revenge travel” trend has not yet abated. More than 53 million people are traveling this Thanksgiving weekend, which is just shy of pre-pandemic levels, according to AAA. Consumers will spend up to $960.4 billion in November and December, up from $889.3 billion for the same period last year, according to National Retail Federation projections.
Of course, there are all kinds of useful conversations and unsolicited advice families can chew on over the Thanksgiving weekend. But if holiday spending strategies come up, here are tips from financial professionals who are practicing what they preach:
Stick with hard numbers
After the pandemic toppled 2020 holiday plans, Carroll felt she had to make up for lost time with her holiday celebrations and gift giving last year. She didn’t commit to capping her gift spending during 2021. This year, however, she is doing just that.
A concrete number is critical for setting goals and sticking to them. “Whenever we have vagueness in the mind we can’t accomplish anything,” said Carroll, director of program evaluation and a regional directed at AccessLex Institute, a nonprofit organization focused on aspiring lawyers and legal education.
Carroll is not new to budgeting. She devotes half of her earnings to necessities, puts 20% towards retirement and short-term savings and uses the remaining 30% for discretionary spending, which includes holiday spending. Throughout the year, she tucks away 2% of her disposable income for holiday spending.
But sticking to a precise cap on gift expenses this year is particularly important this year, she said. The gift money is dedicated for her nieces, nephews and grandkids. For everyone else, Carroll is stepping up her baking this year. “I’m using cookies to spread the joy to everybody,” she said.
Identify the ‘exuberance number’
With friends and family around — especially with the memories of COVID’s social distancing and isolation — it’s easy to get swept up in the euphoria of togetherness and a good party. It’s also easy to buy one more bottle of wine, an extra wedge of cheese or an impulse gift.
This year, Phil Blancato, CEO of Ladenburg Thalmann Asset Management in New York, is trying to resist making those additional splurges by pulling back his gift and food expenses by 10% to 15%.
“That’s the exuberance number,” he said. This isn’t a technical term and there’s no one “exuberance number” for every household. But for Blancato, it’s a handy label that keeps his spending intentional when the potential consequences of getting swept away are higher.
“You want to do a little bit extra because it’s that time of year,” Blancato said. “People like me and, in general, people are going to do less of that little bit extra. That one extra thing is no longer going to be something that you’re going to buy in a year like this.”
What a difference a year makes
As Americans geared up for 2021’s holiday shopping, the yearly inflation rate was 6.2% One year later, the yearly rate, as of October, was 7.7%. That’s a lower-than-expected number following the 8.2% rate during September. The point is, it’s a different economic environment.
“You really shouldn’t go into the holidays with the same mentality that it’s same holiday as it always been. Going into it with that mentality, you’ll blow right through that budget,” said JR George, senior vice president, marketing at Trustco Bank (TRST).
This year, George is shopping early. Last year, he started shopping on Cyber Monday — the Monday after Thanksgiving. This year he has already completed roughly 80% of his holiday gift buying.
It’s not a worry about supply chains and product availability. Spreading out the purchases avoids a truncated spending spree that might make George more likely to rely on credit cards and potentially face credit=card debt, he explained.
Like Carroll and Blancato, George isn’t new to budgeting. He has made peace with the fact that he may be giving less to some friends, family and colleagues — and in some cases, nothing. “I’ve thought a lot harder about who I’m giving gifts to,” he said.
(END) Dow Jones Newswires
Copyright (c) 2022 Dow Jones & Company, Inc.