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The Holiday Budget Bomb and Ho-Ho Hangover

The Holiday Budget Bomb and Ho-Ho Hangover

December 08, 2021
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That most wonderful time of the year is here once again. With warmer than average temperatures in Kansas City, it may not feel like the holidays are upon us, but they are.

So is inflation.

Per the Bureau of Labor Statistics, the Consumer Price Index was up 6.2% in the past year ending Oct. 31. Food prices have increased 5.3%, gasoline 49.6% and electricity 6.5%.

I hope your automobile is holding up well, because a used car or truck will cost 26.4% more than it did a year ago.

We now have two teenage drivers in our home, so I feel this pain. My husband also changed jobs and had to turn in a company car. That means we’ve purchased three used cars in the past year and a half.

The Holiday Budget Bomb

Despite concerns about inflation, supply chain issues and the economy in general, the American consumer is ready and willing to shop and spend. Per the National Retail Federation (NRF,) holiday spending in 2021 could reach $859 billion, an increase of 10.5% over 2020.

In Nov. 2020, the Federal Reserve reported that 36% of Americans would be unable to cover a $400 emergency expense. Yet the NRF reports that we’re spending about $998 per consumer at the holidays.

This isn’t hard math - many are going into debt to cover their holiday spending.

The Ho-Ho Hangover

According to NerdWallet’s 2021 Holiday Shopping Report, 29% of consumers who shopped via credit card in 2020 are still carrying debt from last year’s holiday spending. For millennials, it’s 34%.

The same study showed that the average shopper expects to take 3 months to pay off their 2021 holiday related credit card debt. The interest paid is expected to be about $2.8 billion!

This raises a lot of questions for me as a financial planner and as a human being.

The primary question is, “Why do we do this to ourselves?”

Humanly speaking, it’s easy to get swept up in a wave of impulse purchases.

Shopping without a list and a budget can lead to mindless wandering through a mall or a retail website.

I also hear from clients that last year was such a bummer that they want to make up for it this year. The pent-up demand for travel, social gatherings and shopping is running wild and free.

We only have a few weeks of this madness left and some may have already blown the budget.
How can we approach what remains of the holiday season with greater awareness and forethought?

I recently summoned the courage to suggest to a good friend that we skip the gift exchange this year. We agreed to get our families together for a shared activity or experience instead.

His sense of relief was palpable.

We’ll probably spend the same as we would have on gifts, but we’ll carve out some time to just be together. That feels more in line with the holiday spirit. It’s better than stressing out over what to buy, running around to collect it all and hurriedly exchanging trinkets or gift cards.

I’m not a Scrooge by any means. I enjoy finding and giving that perfect gift. However, I’m also of a certain age where my home – and most of my friends’ homes – are full.

We don’t really need more stuff.

As we grow older, we grow more appreciative of those who share life’s journey with us. We’re also concerned about the environmental impact of all the stuff that’s being made and moved around the world.

Some of the happiest, most joyful people I know are those who live simply relative to their means. They save their dollars for things that truly matter, which aren’t actually things.

This frees up something far more important…their time.

Given the retail sector’s euphoric reports of year-to-date holiday spending, I may be the only one
thinking about this.

But I’ll be buying fewer gifts of greater quality this year. I’ll be hand-writing notes, volunteering and spending time with the people I love most.

In the past couple of years, we have collectively experienced a whirlwind of change and transition. Many have endured incredible loss and hardship but have turned those challenges into opportunities.

We have found a clarity of focus and have released some non-essentials. We have courageously questioned how and where we want to live and work. Relationships have shifted. So has our spending.

We’ve been given a great big reset button and we’ve pushed it! Let’s reflect on that together as we wrap up 2021 and put a bow on it.