With the arrival of December, many people experience angst over the approaching holiday. For some, this has to do with awkward, difficult and/or impossible family relationships, which come into focus under the cultural expectation of family togetherness at this time of year.
However, consumer debt is a more pervasive source of December dread. Yesterday’s news reported on Bank of Canada concerns about increasing levels of consumer debt. The Globe & Mail referred to “insatiable borrowing,” quoting a senior director of Equifax, a major credit reporting agency: “Following a frenzied start to the festive shopping season with more to come in the countdown to Christmas, we can expect the consumer debt to rise even further. Tis the season, so we can anticipate credit cards getting a strong workout throughout December.”
Living in a consumer culture puts us under enormous pressure to spend mindlessly. And our ready access to credit cards has been the marketers’ dream, fuelling the attitude they want us to have: What the heck, spend beyond your current capacity because you can.
Naturally, they love it when we pay their 20% interest for years and years. However, the financial consequences are far beyond what most people imagine. The system is complicated and complex, and there is much we don’t know. Early in my teaching career, I discovered that students generally thought that if they made the minimum payment on a credit card, they weren’t in debt. By using their cards and paying the required minimum, they thought they were doing the smart and adult thing. However, that is an illusion. It takes a shocking length of time to pay off debt by making minimum payments, as explained in a previous blog.
A common-sense perspective
The issue of holiday indebtedness can also be examined from a common-sense perspective. Ask yourself these questions:
- Does it make sense to go into debt over gifts?
- If the recipients knew, how would they feel?
- Would it detract from their pleasure in the gift?
- What if we decided this would be the last year we were going to experience holiday spending angst?
- How might we set the stage for things to be different next year?
Here’s how you can get ahead of the game.
- Change your mindset. How we think sets the stage for how we act. Our thoughts shape what we do. So, if you think there has to be a better way, you will find one.
- Make a practical plan to avoid paying interest on gifts. First, decide how much you’ll spend in total for holiday gifts in 2015. Then divide that amount by 10. For example, if your total is $900 and you divide it by 10, you’ll get $90. This is your monthly amount to set aside from February to November.
- Open a separate bank account for holiday gift spending. Have the bank automatically transfer that monthly amount from your pay into this account, starting in February.
- Use this money only for holiday gifts. If you find yourself tempted to take some out for emergencies, set up a different account to accumulate emergency funds.
This strategy saves you money in two ways
Saving for gifts moves you from mindless consumption to conscious spending.
- You pay only the price of the item, not the price plus 20% interest.
- You’ll have money available to take advantage of good deals throughout the year. Suppose you see the perfect item for your brother in May, on a fabulous clear-out sale. With the cash on hand, you can buy it for a lot less than in December when you settle for whatever the price because, after all, you have to give him something.
As a conscious spender, you…
- think for yourself to make the life you want.
- decide freely, without being influenced by unconscious emotional factors.
- trust your common sense and gut feelings as part of your decision-making process.
- are open-minded to alternative perspectives.
- meet your needs without causing harm to people and the planet.
- base decisions on what is really important to you.
The real holiday fun
When you save ahead for gifts and don’t pay interest to the banks, you have the pleasure of knowing you’ve been in the driver’s seat—a conscious spender rather than a mindless consumer—and have beaten them at their own game. Well done you!