The Psychology of Holiday Spending & Tips for Budgeting

Two families receive a Christmas coupon book in the mail. One of the households earns a six-figure income, while the other has a $30,000 annual salary and large amounts of previous holiday credit card debt. Who is most likely to use the coupons?

Surprise: The wealthy family.

According to counselor Chris Berger, wealthy people tend to budget, save, and use coupons more than the middle and lower classes. Surprisingly this is not because they're being frugal, but because budgeting and saving have become habits for them and is likely what allowed them to accumulate wealth and avoid financial stress in the first place.

These are habits you can also learn yourself, and they are especially useful when it comes to celebrating your holidays on a budget.

During this season of giving, materialism can often come shrouded in generosity. Spending more than you have on gifts and rationalizing over-indulgent purchases with promises of New Year frugality are what plague many consumers with overwhelming amounts of holiday credit card debt or land them in a debt consolidation program. Unfortunately for us, most creditors don't have much Christmas spirit come January.

Berger says some of this over-consumption, while seemingly born from a desire to give, is not entirely selfless. Part of it comes from a social need to keep up with the Joneses — or not wanting others to know how bad your finances really are.

Another reason for excessive spending on holiday gifts is the emotional reaction triggered in a giver when gifting something above or beyond the normal. Unfortunately this is only a short-term benefit for what could be a long-term struggle with credit card debt.

"We're getting some kind of selfish reward for the gift giving, otherwise we'd give within our means and stick to a budget," he said.

So how do we leave our credit cards out of Christmas and prevent our holiday spending from getting out of hand? According to Berger, first we have to want to.

"You have to really want to change," he said. "You have to get down to what the holidays mean to you. If it means potentially bankrupting your own family, maybe it's time to change and get back to a non-materialistic approach and simply not follow the crowd."

Once you decide that you're going to celebrate the holidays on a budget, there are a few simple spending tips you can use to create a successful gift game plan.

Before even thinking about the mall, Berger recommends taking a few minutes to budget out how much you truly have to spend, and then making a list of the names of people you'd like to give something to. Staying within your budgeted limits, write a dollar amount you can spend by each name.

"Then that's it," Berger said. "You can't go over. And it's a hard thing for people to do. It forces people to come face to face with the limits of what they have."

For those that can't be trusted with a credit card once those department store holiday tune loops start (or for those already in a credit card relief program), there is an alternative: go green. Berger said, "Statistically shoppers are almost guaranteed to spend less during the holidays when they're using cash rather than a card."

Try labeling an envelope for each of the names you wrote down and filling it with the designated amount. When you hit the stores for your holiday shopping, bring the envelopes and leave the credit cards at home.

There is a downside to this method — it only works if you have cash to draw from in the first place. If that's not the case, then perhaps it's time to rethink how you show loved ones you care.

"People need to get away from feeling obligated to give presents," Berger said. "Get comfortable with the idea of maybe just buying someone a coffee mug or a trinket and writing a nice note and getting back to the true meaning of the holidays, which is about a true spirit of warmth and giving and love."

Because once the stockings are emptied and the tree is taken down, many of the gifts will end up in closets with last year's latest and greatest, but the memories made will stay with us (and take up a lot less attic space).

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