Expert: Thoughtful planning can keep holiday spending in check

According to a survey sponsored by the National Retail Federation, winter holiday spending in the United States is expected to reach record levels this year, a 3 to 4 percent increase over 2022, bringing national totals to between $957.3 billion and $966.6 billion.

Shoppers are expected to spend an average of $875 each on gifts, decorations, food, and other holiday related items, according to the survey. Some consumers unthinkingly spend more than they can afford to, taking them into the new year with regret over debts they have difficulty managing. That scenario can be avoided, according to Rohan Ganduri, assistant professor of finance at Emory University’s Goizueta School of Business.

“With retailers everywhere enticing consumers to spend, it’s easy to overspend,” Ganduri said, “but overspending can be avoided. The first step is to make a budget and stick to it. It’s easy to overlook small items such as greeting cards, but they can add up if you’re not careful.”

Ganduri also advised those celebrating holidays to start early whether shopping for gifts and decorations or making travel plans. “When you plan ahead, you are able to compare deals and select the best one for you. At the last minute, you just have to take what’s available regardless of the price.”

Planning also can help shoppers fit their holiday spending into their overall personal finances, Ganduri said. “Those using credit cards should look at the advantages one card may have over others depending on what they’re buying. There are general credit cards that can be used essentially anywhere and store-specific credit cards. Look at the interest rates and terms as well as such features as ‘cash back’ offers before deciding which to use. There also are purchase-specific deals that allow you to make a down payment on a specific item then pay a specified amount each month. Compare deals and look at the total costs before deciding which is the best way to go,” he recommended.

Being aware of one’s habits and tendencies can help those celebrating to stay in control during the holiday season, Ganduri said. “Shoppers can look back at what they’ve done in years past and know where they tend to overspend,” he noted, “then they know where to be careful. Impulse buyers know their habits and should be careful to avoid making purchases without thinking. For example, people who tend to go overboard shopping for clothes for holiday events, should make a conscious decision to look through the clothes they already own before buying a new outfit.”

Giving money as gifts can help people stay within a budget, but there are pros and cons to giving cash, according to Ganduri. “Sometimes, the shopper can find a bargain on an item the receiver would like and spend less than he would if he gave money. Also, some people value the time and effort the giver put into selecting something their friend or family member would like above the simple gift of cash,” he said. He recalled a television comedy in which a woman having a birthday received cash from one friend and an item from another. The friend who gave cash was irked that the woman was much more excited about the item she received from the other friend even though it cost less than the cash gift.

Money has a psychological component, Ganduri explained, citing what is known as “the present bias”—the tendency to favor immediate rewards over longer-term rewards even when the person can do better by waiting. “It you give a person the choice between receiving $100 today or $110 tomorrow, he likely will take the $100 ., However, if you offer someone the choice of $100 a month from today or $110 a month and one day from today, he will likely take the $110 a month and day later. The gap between the $100 and the $110 is still one day, but people are inclined to take money that’s available today,” he said.

Ganduri said the most important way to keep holiday spending in check is to think of all the implications of each financial decision and plan before spending.