Although the American economy is rebounding following the Great Recession, it's still important for consumers to be deliberate in their holiday spending.
To help readers cope with overspending, the wealth effect and shopaholism, WalletHub compiled a list of experts, including Terry assistant professor of marketing Julio Sevilla, to provide tips and suggestions to keep consumers safe from themselves during the holidays.
A selection from the interview is copied below. The full interview is available online.
What tips do you have to help people avoid overspending?
The main reasons for overspending are inaccurate or lack of budgeting and indiscriminate credit card usage. People should know what their disposable income is after they have covered their monthly expenses and set aside some funds for savings and incidental expenses that always exist. Once they have done that, they are able to know what their discretionary funds are and can decide if a particular purchase is worth it based on how much money they have available to spend. Furthermore, for consumers low in self-control and with limited economical means, credit card usage should be discouraged. For those that feel they can handle that responsibility, I would recommend having only one credit card with a relatively low credit limit, for example, the equivalent to one full month of discretionary income. Some people are able to manage credit cards with higher limits that they pay at the end of each month to avoid paying for interests and to benefit from rewards programs, however, this may be a risky business and I would recommend this strategy only to consumers who are confident about their abilities to responsibly handle their funds and that have been successful doing this in the past.
How do you think the current social and economic environment is influencing household spending decisions?
Consumer confidence and the economy have recovered moderately since the big recession of 2008 and so has people's appetite for spending. In the long run it may be better for family economy that people modify their spending to the new economic realities that the middle class faces nowadays, as long as the economy does not become stagnant once again due to fear of spending as a result of concerns about a new recession.
Overall, families are buying fewer and cheaper gifts for fewer people during holiday seasons. Furthermore, there is a lot of emphasis on obtaining the best deals, something that is facilitated by increased online searching and buying (which involves very little cost and effort as compared to brick and mortar store searching), a new trend that forces traditional retailers to offer more competitive deals.
What tips do you have for how people should allocate their disposable income?
We often buy a lot of material things for which we already have substitutes or even older product versions. This means that the value that these newer products provide us is often incremental at best. So unless there is a material item that we really need, I would recommend people to use their disposable income towards experiential products (e.g. vacation, spas, special services, etc), as those are the ones whose value and memories we are able to enjoy and cherish for a longer period of time. Sharing with others and donating to people in need is something that often results in rewarding and happy experiences for the giver.
That being said, disposable income is a luxury nowadays and you can always invest it on intelligent upgrades towards your home that will increase its value and provide you with a more enjoyable living. Furthermore, you can always save and allocate more funds towards your miscellaneous/incidentals accounts.