FORT WORTH, Texas--(BUSINESS WIRE)--Almost 40 percent of Americans reported overspending on the holidays last year, and they overspent for some pretty counterintuitive reasons, according to newly released research from Elevate’s Center for the New Middle Class (CNMC).
“Consumers often employ strategies to save money during the holidays that actually work against them,” said Jonathan Walker, executive director of Elevate’s CNMC. “Those who try to save money by looking for deals are actually much more likely to spend more than they planned.”
The factors that lead to consumers’ over-spending fit into three categories: poor savings strategies, poor payment strategies and poor planning. The survey of 1,011 US consumers was conducted just after the 2016 holiday season, when spending recollections were still fresh.
To control holiday spending 86 percent of consumers use some sort of savings tactic – the most popular being shopping sales, at 63 percent. Yet Walker notes: “It turns out that one of the best ways to ensure overspending is to chase the sales.”
Consumers who said that they hunted for sales to control their holiday spending were 45 percent more likely to report that they overspent their budget during the holidays versus those who said they didn’t focus on sales. If they failed to set a strict budget, the impact was even greater. Sale shoppers who did not budget were 87 percent more likely than budgeters to report that they spent more than they planned for the holiday.
Those who used coupons to save didn’t fare much better. Overall, coupon clippers were 22 percent more likely than those who didn’t use coupons to report spending more than they planned. Coupon clippers who did not budget were 76 percent more likely than budgeters to report that they spent more than they planned for the holiday.
Cash is king. According to the survey, paying with cash is the most effective way to keep from overspending. Consumers who usually pay with credit or debit cards are 38 percent more likely to overspend than those who use cash.
It’s normal to plan for spending on gifts, but presents are not the whole story on holiday spending, according to the data. Gifts amount to 58 percent of overall holiday spending, while spending on things like travel, food and celebrations add up to 42 percent.
“Planning for all the other holiday expenses is crucial to successfully managing the holidays,” said Walker.
The most effective way to control spending is to set strict spending limits. Those who set limits were able to maintain their spending. Those who failed to plan at all spent 125 percent more than the strict planners.
The study also looked at differences between American consumers with prime credit scores (700+) and non-prime consumers (with credit scores below 700) and found that – contrary to what some would believe – non-prime consumers were less likely to overspend than their prime counterparts.
So what steps can customers take to ensure they don’t overspend?
- Build a budget. Review all expenses from years prior, and ensure the budget includes categories for travel, decorations, food, and utilities. Here, prime consumers can learn from non-prime: Prime consumers are 14 percent more likely to employ the “I have a rough idea” approach to holiday spending – informally determining what to spend on different categories, without clearly defining firm numbers. Additionally, non-prime consumers are 67 percent more likely to report that they spent less than they planned for the holiday.
- Set strict limits for spending. For maximum impact, cap spending at a total gift budget, or per person. Setting strict holiday spending limits more than doubles prime consumers’ chance of improved finances after the holidays. Non-prime also see a benefit, though it’s not as pronounced.
- If possible, account for unexpected expenses. Fifty-six percent of respondents reported an unexpected expense—such as car or house repair, an unexpectedly high utility bill or medical expenses. These expenses put added stress on budgets; respondents were twice as likely to incur new debt if they experienced an unexpected expense during the holidays.
- Work to avoid savings “traps.” Though it feels counterintuitive, sales and coupons correlate to higher spending unless consumers set and commit to a strict budget.
- Be a cash accountant. Once the budget is set, take out totals in cash, and leave the credit and debit cards at home.
“Though there are slight differences in holiday spend and strategy, for prime vs. non-prime consumers, the holidays can be financially stressful for everyone,” said Walker. “Marketing tactics—sales, coupons, credit card points—may look like ‘bonuses,’ but businesses know how to get consumers to spend more money. By approaching the season with a budget and plan, consumers can protect themselves and their financial wellbeing.”
About the Research
The Center’s research compared the responses of 1,011 Americans with prime (n=510) and non-prime (n=501) credit scores using interviews conducted January 12-17, 2017. For more details on the study, click here.
About Elevate’s Center for the New Middle Class
Elevate’s Center for the New Middle Class conducts research, engages in dialogue, and builds cooperation to generate understanding of the behaviors, attitudes, and challenges of America’s growing “New Middle Class,” defined as those with credit scores below 700. For more information, visit: http://www.newmiddleclass.org
Elevate (NYSE: ELVT) has originated $4.9 billion in non-prime credit to more than 1.8 million non-prime consumers to date and has saved its customers more than $2 billion versus the cost of payday loans. Its responsible, tech-enabled online credit solutions provide immediate relief to customers today and help them build a brighter financial future. The company is committed to rewarding borrowers’ good financial behavior with features like interest rates that can go down over time, free financial training and free credit monitoring. Elevate’s suite of ground-breaking credit products includes RISE, Elastic and Sunny. For more information, please visit http://www.elevate.com.