I just did an interview with the Christian Science Monitor and we were talking about holiday shopping. The question was if I thought people were going to significantly cut back on holiday shopping to live within their budgets. Sadly, I don’t think they will.
Gift giving and shopping at this time of year are ingrained in our consumer DNA. While we have the best of intentions of spending within our budgets, the runaway shopping fever sweeps many up and leaves them with a regrettable January credit card hangover.
The reason I don’t think there will be a significant change this holiday season is that financial pain has not manifested itself in a large number of homes yet. While retail predictions are down, they are only down by 2% or so and that still leaves holiday spending at 98% of last year’s levels. That’s a lot of money.
So what will happen? My prediction is that with income dropping people will rely more this year on credit cards to purchase gifts. Those bills will hit around the middle of January and while people will make the promises to get the debt under control, continued reduced income or joblessness will make that impossible. As a result, bankruptcy rates should increase in the spring of 2009.
So much of why we buy and overspend at the holiday time is driven by marketing messages, guilt, the feelings that we need to buy stuff to show we care or show our love. It is what we do, we’ve always done that.
This year we are not going to have the home loans available to consolidate debt or as many home equity loans to tap to pay off bills. The home ATM is broken right now with lenders hesitant and economic prospects looking darker.
If you can, if it is possible, I urge you to please spend only that money that you have on hand for holiday gifts this year. Do whatever you can to emerge in 2009 with no carryover holiday debt. Now is not the time to dig a deeper financial hole. Now is the time to start filling it in.