America Saves recently shared some of our favorite thoughts and lessons from our conversation with two economists who often have different views about savings issues that impact not only the national economy, but our families as well.
We asked Aaron Klein, a fellow of economic studies at Brookings Institution, and Mark Calabria, the director of financial regulation studies at CATO Institute, about the role of holiday spending in the nation’s economy. Click here to view their entire conversation.
The conversation was so chock-full of facts, tips, and insights, that we had to share five more:
Ideally, you’ll begin your holiday season prepared with some savings. And another helpful tool Mark suggests is starting out with a budget that keeps spending down. If we shop in isolation, it begins to add up quickly. A better way is to plan who we’re going to shop for and how much we’re going to spend before heading to the stores.
And if you’re not watching your money carefully, Aaron explains, you’re probably falling for a spending paradox. That is, the more people spend the less they care about the dollar amounts. So if you buy a house or a car, you’re thinking less about an extra $1,000 here or there. But if you’re at the mall buying clothes, you would never casually throw in an extra grand worth of items.
Economists are unsentimental, Mark confesses. You may have heard an economist suggest that cash or gift cards are the perfect gift because the recipient can get exactly what they want without having to store any weird handmade sweaters in the closet for years and years. But, admittedly, there’s value and sentiment in hand-selected gifts that sometimes economists miss, something both economists can agree on.
Mark shares an interesting point that that we don’t often discuss, but should be obvious: the largest amount of redistribution of wealth that goes on between friends and families happens during the holiday season. Younger people in their teens and twenties often get more than they give, thanks to older family members.
Older people fundamentally spend less than teenagers, Aaron suggests. They don’t necessarily earn more. That check from grandma and grandpa may have been saved over the year from social security, or the money they made on a yard sale.
When we talk about the economy, we often are talking about money. But Mark makes the point that there’s importance in non-monetary gift giving. For some, the gift of time is even more valuable than something of monetary value. It’s a great idea for a younger person, who can gift their parents time helping around the house.
While the use of credit cards can encourage us to spend more than we otherwise would have, they can be a valuable tool when used responsibly. As Aaron explains, you can end up spending less in interest than you would skipping the credit card, over drafting your checking account, and being hit with fines.
Any cash you receive during the holidays can be used to quickly pay down your holiday charges. And if you’re planning on using your tax refund to pay off debt, Aaron suggests filing early because you accrue interest on a daily basis.
Similarly, Mark advises, you can save yourself a month’s worth of interest by charging gifts last-minute instead of purchasing them in November.
Looking for more? See our first five things we learned about holiday spending from talking to a couple of economists here.