Let’s be honest. The holidays are a time to spend.
In 2015, shoppers spent more than $4 billion on Black Friday and Thanksgiving alone. The National Retail Foundation predicts 2016 sales to top $650 billion. Retailers are expected to hire more than half a million workers to quell our holiday shopping hunger.
While this is all good news for stores, a survey from credit bureau Experian revealed that most of us are heading into a tornado of spending with a budget or plan in place.
By the time the new year rolls around, many of us will be paying off credit card debt we amassed as we spent, on average, nearly $1,000 on the holidays.
Experian’s survey included all kinds of interesting facts about the average American consumer. To get an insider’s perspective on what it all means, we talked with Experian’s Manager of Consumer Education, Sandra Bernardo.
As we discussed the results of the survey, a few huge things became apparent to us.
First, consumers don’t make budgets for their holiday spending and that’s a problem. Second, unexpected expenses seem to creep up on us. Third, we’re willing to risk identity theft in order to snag an unbelievable sale price.
We’re Not Crunching the Numbers: Most Consumers Don’t Make Holiday Budgets
Americans don’t make a budget to track their monthly expenses.
During the holidays, Experian’s survey said, that number jumps up to 62%. Whether it’s because the holidays always seem to sneak up on us, or we’re just too busy during November and December, most of us try and freestyle our way through our holiday spending.
We Store Our Budget in Our Brain
Along with their main survey, Experian did some man-on-the-street interviews with average consumers. When asked how they made decisions about how much they spend on holiday gifts, they said it’s more of a mental tally than anything else.
“A lot of the responses as to why they didn’t have a budget was that they had a budget in their minds,” Sandra said. “They had a ballpark figure and went off of that.”
We don’t know about you, but when the holidays are in full swing and you’re trying to make every work party and white elephant get-together while traveling to see family and, if you’ve got them, take care of your kids, it seems pretty much impossible to keep track of hundreds of dollars of spending without writing it down.
“That’s why I think consumers tend to overspend,” Sandra told us. “They don’t account for unexpected expenses and that’s what puts people over the edge into debt.”
And when we head to stores on Black Friday, it’s even harder to keep our spending under control.
“As we all know, you get into the store and everything is so tempting and enticing,” Sandra said. “I think it’s overwhelming for some people and it’s easy to lose control.”
Retail craziness and poorly formed budgets can also push us to buy things we didn’t exactly need or anticipate. According to Experian’s survey, unexpected expenses cost us about $288 in 2015 (more on that in a minute).
The Remedy: Write Down Who Needs Gifts and How Much You Want to Spend
The fix here is pretty easy, Sandra says. Do a mini-budget and write out each person you want to buy a gift for.
Next to that, write out how much you want to spend. Once you’ve got that squared away, add up all the costs and you’ve got yourself a legitimate holiday budget (and financial bragging rights over 62% of Americans).
My wife and I use this method, but instead of writing things down on paper, we added a “Christmas” category to our YNAB (You Need a Budget) app, then entered subcategories for my family, her family, our daughter and the both of us.
Each time we make a purchase in one of those categories, we enter it into our YNAB app. We can see our balances in real time as well as past purchases, so we know exactly what we’ve bought and how much we have left to spend.
This method isn’t foolproof, though, because of what Sandra likes to call, “unexpected expenses”.
What to Expect When You’re Not Expecting Extra Holiday Spending
As we mentioned before, those who responded to Experian’s survey said they spent nearly $300 on unexpected purchases during the holiday season. That’s a pretty big chunk of change … about 30% of the average American’s holiday spending.
How do these extra purchases come about? Experian didn’t ask follow-up questions about where that money went, but Sandra has a pretty good idea. She proposed four types of “unexpected” budget busters:
- Work/Friend/Community Parties: You get invited to a couple of parties and you need to bring food and a gift.
- School: Your little one has fundraisers and parties and teachers, and you feel obligated to bring a gift or baked goods to each one.
- Shipping: Sending off gifts to relatives can start to add up.
- Travel: You decide to drive up to a friend/relative’s house for Thanksgiving or Christmas.
We usually feel pressured to produce a gift or a bottle of wine at parties or when we visit someone. That’s understandable, but it doesn’t mean we have to bust our holiday budget because of that pressure.
“Consumers feel pressure to participate in the shopping frenzy and probably put more pressure on themselves than they need to,” Sandra told us. “Or, others put pressure on them because they’re feeling the same way.”
How do you keep your unexpected spending down, especially on credit cards?
“There are many options for decreasing the amount you want to spend,” Sandra said. “One of the best ways is to keep in mind how much you can afford, what your budget is and have the commitment to stick to it.”
Our suggestion is to take time during your budgeting session to think about possible costs that could pop up.
Planning for as many expenses as you can will help you feel like you have control over your finances and you’ll be less likely to give in to the consumerism that’s swirling through the holidays like an all-consuming winter storm.
See Also: How to Save On Holiday Decorations
Wait, You’d Really Put Your Personal Information at Risk for a Bargain?
There’s an old story from antiquity where a guy is out hunting and he gets real hungry and decides to go home. When he arrives home, his younger brother is cooking up an amazing stew.
The older brother is so hungry he offers his birthright (land, honor, wealth) to his younger brother for a bowl of the stew. The younger brother takes the deal – wise move, bro – and the older brother is left with a great dinner and absolutely no financial future.
Sounds crazy, right? But, according to Experian, 44% of consumers are willing to do the same thing.
They see a good deal online and they feel like they just can’t resist. The website and/or the offer seems shady, but their hunger for that deal drives them to hand over their personal information in order to make the purchase.
That’s right … nearly half of us would be willing to risk identity theft for a good deal during the holiday season.
A classic example of this is the Great Ray-Ban Scam of 2016, in which scammers bought up Ray-Ban related domains and created fake Ray-Ban websites selling the sunglasses for $19.99. The scam got notoriety when its Facebook ads caused a stir.
Sandra told us one of her colleagues nearly fell for the scam but paused long enough to realize something wasn’t right.
According to Experian’s survey, though, four out of 10 people would’ve tried to purchase those Ray-Bans.
“I think we get hooked in because of the excitement and frenzy of trying to get the discount and we forget about being as diligent about the risks,” Sandra said.
Our co-founder Vlad Rappaport wrote a great article about fake websites titled, “6 Ways to Spot a Scam Website in Less Than 30 Seconds.” Take a read, as we think the tips we give you for spotting fake sites can help you avoid an expensive – and embarrassing – mistake this holiday season.
Holiday scams go beyond fake websites, though. We’ve put together a list of 14 popular holiday scams. Here are some of the popular tricks that seem to surface every holiday season.
Fake Delivery Notice
This time of year, packages show up on doorsteps all the time along with an email or text notification about the delivery. In some cases, thieves will send you a fake delivery notice from reputable sites like UPS and FedEx. When you click on the link in the email, you’re taken to another page that asks for your personal information.
If the delivery information seems odd or you didn’t expect the email, copy the packages fake tracking number and paste it in the company’s tracking number search box. This should clear up any confusion. Once you verify the email is a scam, delete it.
The average person is in the giving mood come holiday time, so scammers like to launch a round of fake charity scams in which they pressure you into donating a minimum amount to their “cause”. You may also get emails soliciting cash for made-up organizations.
Our advice? Run the charity’s name through the Better Business Bureau’s Wise Giving Alliance, or only donate to charities with which you have an existing relationship.
Gifts aren’t the only thing consumers purchase during the holiday season; travel is a big market, too.
In your enthusiasm to book a good deal, you become vulnerable to holiday travel scams. The biggest sign that you’re caught up in something shady is when the travel “company” asks you to pay up-front for vouchers or coupons that give you huge discounts.
In many cases, the voucher/coupon racket is just that: a racket. Once you give the company your credit or debit information, they take your money and that’s the last you hear from them.
Other Holiday Scam Tips
As we pointed out in our article comparing credit cards and debit cards, credit cards come with a far more forgiving fraud policy. You won’t be liable for fraudulent purchases, a luxury you don’t have with debit cards (you can be on the hook for up to the full amount!). So, try to use your credit card whenever you can.
Also, if you come across a website that seems too good to be true or your instinct tells you something isn’t quite right, take a moment to scan the site and the site’s URL. You’ll usually find inconsistencies that reveal the true nature of the site.
The Bottom Line: Make a Budget, Plan Ahead, and Avoid Scams
As with any financial decision you make in your life, the key to reining in your holiday spending is to create a budget that plans for the obvious expenses (gifts, decorations) and the not-so-obvious ones, like Christmas parties, baking supplies and spur-of-the-moment trips to visit friends and family.
The more you plan, the more you’ll be prepared to handle any financial challenges that pop up, and, in our opinion, the more likely you’ll be to avoid getting sucked up into the frenzy of Black Friday. Create a solid budget – it takes no more than an hour – and stick to it.
We suggest using an app like YNAB or Mint to keep track of your spending, mainly because you can enter your purchases right when you make them instead of having to wade through a high tide of shopping bags to find your receipt.
If the thought of budgeting intimidates you, stop by an article our other co-founder, Dmitry Ozik, wrote about creating your holiday budget. He talks about how much your gifts actually cost if you overspend with your credit cards, as well as how to create a budget that includes key expenses you may not think about.
2. Unexpected Expenses
Also, keep in mind that you’re going to have some unexpected expenses no matter how well you plan ahead. If Experian’s numbers are right, you can expect to pay about $290 in extra purchases you didn’t plan on making.
So, decide on a number that seems realistic and add that to your budget. Doing so will give you control over the expected and unexpected purchases you’ll be making.
3. Scammy Websites
Thieves know you’re ready to spend your hard-earned money and they’re going to do anything they can to get it.
Be wary of any too-good-to-be-true offers that pop up on your Facebook page or in your email inbox.
If you click on a link that takes you to a supposedly unbelievable deal, scan the website for odd spelling errors and check the URL. Usually, one of these two checks will reveal that the site isn’t what you think it is.
See Also: Top Scams & Best Ways to Avoid Them
More About Budgeting
This isn’t the first time we’ve talked with Sandra Bernardo. She filled us in on another Experian survey that said half of Americans don’t have a budget, and that many of them are stressed out because of their finances.
Click here to read about what is stressing us out and why many of us don’t make budgets.
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