How to Tame Overly Spirited Holiday Spending

Olivia Mellan and others offer tips that advisors can use to help clients get the most out of the holiday season without overspending

Expressing holiday spirit by spending too much money can be a big problem for some, even the wealthy. So it would be wise for advisors to help their clients’ rein in spending by understanding the psychology behind it.

Sure, money means excitement over the prospect of spending a bundle on a big-ticket item for a loved one or happiness when receiving a generous gift.

But money also means love, acceptance, self-esteem and an attempt to express love or buy it outright with the purchase of gifts–whether or not they're affordable, says Money Harmony psychotherapist Olivia Mellan, who also contributes regularly to Investment Advisor magazine.

“Money is a taboo subject,” says Mellan in a recent phone interview with AdvisorOne about holiday spending. “When people are tired or under stress, and the holidays are definitely a time of stress, they will almost always revert to primitive survival mode, which is irrational.”

‘Affluenza’

Olivia Mellan“Affluenza,” as Mellan (left) calls it, is an American disease of addictive overspending that takes a lot of courage to avoid. At holiday time, she says, steering clear of affluenza to embrace a healthy psyche instead might actually be more valuable than a gift. Advisors, financial writers and even the Consumer Federation of America back up Mellan’s call for more mindful spending to celebrate the spirit of the season.

Planning ahead is key to a mindful December, notes Kelly L. Trageser, a NAPFA-registered certified financial planner with Sea Clear Financial Planning of Sea Girt, N.J., who includes cash flow advice and debt management among the services she offers clients.

“Although this is the season of giving, it is important to give within your means,” Trageser wrote to AdvisorOne in an email. “The best chance of doing that is to review your budget and decide how much you are comfortable spending this holiday season.  Then, create a list of the people that will receive a gift.”

By dividing that list into thirds, shoppers can reduce expenses, according to Trageser. The first group gets a store-bought gift, the second group gets a gift card, and the third group gets a homemade gift such as a tin of cookies. “This is a great way to keep a handle on spending this holiday season and still have a great time,” she says.

Numbers Tell Holiday Spending Story

Research by investor site MillionaireCorner.com shows that 6% of 1,224 people studied, who have at least $50,000 in net worth, plan to make a major purchase this holiday season. While the 6% is consistent for men and women, it varies more by age, with 14% of those 40 and younger planning a big purchase versus just 4% of those 60 and older.

Here’s the breakdown of what the big-ticket spenders plan to buy:

  • 47% electronics
  • 30% vacation/travel
  • 27% jewelry
  • 26% automobile
  • 1% recreational vehicle
  • 16% other

Nevertheless, these more affluent consumers with assets ranging from $100,000 to $1 million or more are keeping a tighter rein on their holiday budgets overall. Fully 86% plan to spend the same or less compared with last year while just 14% say they will spend more.

To be sure, people willing to spend more in 2012 are the ones who feel they are better off financially than they were a year ago.

According to a holiday spending survey conducted via phone by the Consumer Federation of America and the Credit Union National Association, 62% of those who said their situation had improved were planning to spend more than last year while only 11% planned to spend less. But among those who said their situation had worsened, only 5% were planning to spend more while 57% planned to spend less. Overall, the survey of 660 people says more consumers plan to spend more than last year, the fourth year of gradual improvement in holiday spending plans since a sharp decline in 2008.

Set a Budget

These survey results trouble NBC “Today” show financial editor Jean Chatzky in her Nov. 27 “This Week in Your Wallet” column, who warns that avoiding holiday debt is more important than deals and smart shopping strategies. Her answer? Keep a budget.

“I recommend setting a budget, and trying to cap it at 1.5% of your annual take-home pay,” Chatzky writes. “This is a percentage that, if charged to a card, can be easily paid off by February. If you haven’t gotten a raise since last Christmas, this means your 2012 holiday budget should be the same as your 2011 holiday budget.”

Mellan, who describes herself as a “recovering overspender,” counsels knowing what one's personal stress patterns and circumventing them. At the end of the day, she says, when indulging on the surface by spending, people risk starving their soul.

“You could go shopping with a friend who’s not an overspender and can help you not cheat,” Mellan offers as an example. “You have to choose whether to treat yourself on the surface or nurture your soul–which involves creativity, charitable giving, walking in nature and spirituality.”

Here are just a few of the Consumer Federation of America’s tips on how to spend for the holidays without breaking the bank:

  • Map it out. Avoid wasting gas on multiple trips by planning your shopping as efficiently as possible. “If you can park and walk to several shops in the same area, you’ll save money and get exercise as an added benefit,” the CFA says
  • Take advantage of shopping by phone and online. Here, it’s wise to comparison shop, and pay attention to shipping costs, which can eat into savings. Look for free shipping, and use promotional codes.
  • Give gifts that save people money. “How about a gift certificate for the hairdresser or barber that the person goes to? The grocery store where the person shops? The local gas station? You can’t go wrong with gifts that help defray people’s everyday expenses,” the CFA advises.
  • Give gifts that help other people. And finally, for the person who has everything, consider giving a gift in that person’s name to a worthy charity. For example, with so many people still recovering from the damages of Hurricane Sandy, a donation to the Red Cross may be appreciated just as much as a present under the tree.

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Read Olivia Mellan’s A House Divided: Help Client Couples Work Together from the November 2012 issue of Investment Advisor magazine at AdvisorOne.

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