At the beginning of each New Year, the joy of holiday giving is quickly replaced by the pang of regret for many people as bills start rolling in and the scramble begins to find money to make the payments. All one has to do is listen to the discussions that co-workers and friends engage in about how they didn’t realize they were overspending until the credit card bills arrived and they saw how much the balance had increased. Unfortunately, holiday giving is one of the biggest annual expenses for many people and the one they plan for the least.
[dropcap]D[/dropcap]uring the second half of the Twentieth Century, the advent of credit cards and electronic media combined to produce an over commercialization of the holiday giving spirit and wreaked havoc on the finances of many Americans. Credit cards provided consumers with a euphoric sense of having free money and merchants used a barrage of electronic advertising to hype them into spending it. As a result, millions of Americans start the New Year buried in consumer debt.
The lucky ones are able to pay off this year’s debts just in time to start the process all over again next year and the credit card companies love it as they rake in billions in interest. Invariably, it’s the ones who can afford it least who pay the most. Why? Why are people so susceptible to the money drain of this cycle of borrow, spend, borrow, spend into which they put themselves?
In an effort to answer this question, I asked a number of senior citizens who grew up during the years before credit cards and electronic media what they did. Their answer was consistently, “If we didn’t have the money, we didn’t buy.” This reminded me of the push banks made when I was a youngster to get people to establish Christmas accounts. These were accounts established early in the year, in which deposits were made throughout the year and the money could not be withdrawn without penalty until September or October. It was a simple way for people to save for Christmas, earn a little interest on their money and not have to go in debt to give gifts during the holidays. How long has it been since we’ve seen any advertising for Christmas accounts?
The answer is simple, why would banks encourage consumers to save for Christmas when they earn outrageously high interest rates if they buy on credit? My research disclosed that most credit unions still offer Christmas accounts, but few banks do. Those that do, promote them very little. The point is our nation has slowly been led away from the save-then-spend state of mind of our elders to a borrow-and-buy way of thinking that can be financially destructive.
Most everyone enjoys giving gifts during the holiday season, but when doing so causes financial distress the rest of the year, is it really worth it? [quote float=”right”]Think of it this way: When you go in debt to give a present, is it really a gift?[/quote] Think of it this way: When you go in debt to give a present, is it really a gift? Aren’t you actually giving something you don’t yet have? The money to pay for it has yet to be earned. When viewed from this perspective, the gift you buy on credit is only a promise. A promise that will fall on someone else to fulfill should something unfortunate happen to you or it will become a loss to the lender who loaned you the money.
Imagine the impact it would have if your neatly wrapped Christmas packages contained neatly folded IOUs instead of presents. After all, you gave a lender IOUs to obtain the presents, why not just cut out the middleman? Do you think you or the recipient would feel the joy of giving or excitement of receiving if you gave a $100 IOU that said I will give you $10 a month until next October? But, isn’t that exactly what you are doing when you buy a gift on credit and then take most of the year to pay for it. The only difference is the gift hides what you are really doing from the person who receives it.
It’s the first of a new year and a good time to resolve to make things different in the coming year. The Christmas accounts used by our elders may be an old idea, but it’s still a good one. Not only is it a good idea, but it lets you buy more with the same money. Think about this! If you plan to spend $1,200 next Christmas, you only have to save about $97 per month in an interest bearing account to build up that amount, but if you charge it on a credit card you’ll have to pay back about $110 per month for a year to pay it off. That $13 per month difference may not seem like much, but it’s more than enough to buy a $25 gift for six additional people or an even nicer gift for those already on your list. You could even use the money to buy yourself a nice $150 gift as a reward for having the discipline to save-then-spend rather than borrow-then-pay.
If your bank doesn’t offer a Christmas account, no problem; a simple passbook savings account works just as well. It’s not the type of account that’s important; it’s the level of discipline and commitment on your part that determines whether you start the New Year feeling good about the gifts you have given or kicking yourself because of all the debts you incurred.
As each year ends and a new one begins, millions of people promise, pledge, vow, swear, declare, assert or whatever else you want to call it that they will do better in the coming year than they did in the last. Unfortunately, most New Year’s resolutions quickly fall by the wayside, firm goals become good intentions and even these are soon lost as old habits return and with them more of the same behavior that prompted the resolution in the first place. Why? Why are New Year’s resolutions so hard to follow? Is it because too many Americans have lost the concept of delayed gratification? As a nation, we’ve developed an I-want-it-now-attitude that results in more and more debt and the misery that eventually comes with it.
Decide today how much you want to spend next holiday season. Divide it by the number of times you will get paid between now and then. Deposit that amount each time you get paid. Sounds simple, doesn’t it? But as simple as it sounds, most Americans aren’t willing to make the commitment to do it and as a result consumer debt continues to grow.
I’ll leave you with this thought. Try it for one year and you will do it for the rest of your life. The feeling that comes from giving what you’ve already earned rather than giving a promise to pay later is one of the most rewarding things you will ever do…for both yourself and for others.