ECU finance professor offers tips to deflate holiday season costs

It is not quite the night before Christmas, so all through the house everything seems to be stirring. Decorations are beginning to appear, holiday travel plans are being finalized, and last-minute home projects are politely being requested before friends and family gather. Amid the excitement, one cannot help but feel that something is trying to steal the holiday spirit. Luckily, it’s not a green monster and his dog Max, but it’s something almost equally as ominous – inflation.

Holiday Spending Tips: Set Limits, Get Creative, Buy Necessities, Holiday Traditions, Credit Card Cash backs, Shop Early

While inflation has become ubiquitous and talked about ad nauseam, it nonetheless remains a real issue with real consequences. Post-Covid supply chain bottlenecks, war in Ukraine, tight labor markets, and excessive government and consumer spending all contributed to the highest rates of inflation since the early 1980s. While talking heads would like to tell you things are greatly improving, it doesn’t take an economist to convince you to believe your own eyes. Everything is still expensive. According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) rose 3.7% in the 12 months through September 2023, largely unchanged from August. While this number is undoubtedly better than the 9.1% in June 2022, it doesn’t tell the entire story. These figures are year-over-year changes, meaning that the percentage change is compared to the same month a year earlier. The September 2023 CPI was 3.7% higher than the September 2022 CPI. However, September 2022 CPI was 8.2% higher than September 2021. Inflation is just increasing at a decreasing rate.

If we look at prices over a longer period, it gives us a better perspective of just how much prices have changed. For example, a product that would cost you $100 in September 2020 would now cost you $118.25, an increase of over 18% in three years! This holiday season is likely to be more expensive than the ones we have had in the past. While such facts may make me sound like a Scrooge and make you feel less than holly-jolly, it is important to recognize the reality of the world around us and focus on what we can control. Here I want to share some ideas and strategies that my family has done to lessen the sticker shock.

Set Limits

  • We all want to give gifts that are going to be appreciated, enjoyed and loved by those to whom we give them. However, such gifts are often not tied to a price tag. With the current inflationary environment, it may be wise to set limits on the amount you spend on gifts for each other. This goes beyond the internal household budgeting that is typical for holiday shopping but extends to having conversations with friends and other family members where you collectively agree not to exceed a predetermined limit, such as $20, $50 or $100. In some cases, the exchange of gifts may be considered unnecessary. While some may argue that putting a cap on gift-giving undermines its intended purpose, I argue that it is a more thoughtful and understanding approach. The holidays can be financially stressful and being mindful of another’s budget underscores the spirit of giving, which is thinking of others. Clear limits relieve stress, temper expectations and anxiety, and give you an incentive to get creative within the boundaries you set.

Get Creative

  • Speaking of getting creative, the limits and constraints we face often breed innovation. One way to respond to rising costs and tighter budgets is to consider making gifts for your family. My sister-in-law is a perfect example of this. In 2021, she decided to take up sewing and crocheting as a hobby and make everyone gifts. While it was not a professional job, her gifts remain some of the more thoughtful my wife and I have received, and we still enjoy them today. Last year, I took a page out of her book and made my mother a Christmas ornament. I enjoyed the process of personalizing a gift for someone I love. It was an affordable way to slow down and bring a smile to my mother’s face that I will cherish for years to come.

Buy Necessities

  • Let’s be honest, the day-to-day necessities for everyone are getting more expensive. From groceries to our oil changes, there doesn’t seem to be much relief. In recent years, my father bought everyone in our family gift cards to our favorite grocery stores. While not a flashy gift, I must say that I deeply appreciate the help on the staple items. Things like automotive, home improvement and grocery store gift cards are a straightforward way to give a gift that considers the other person’s life beyond the holidays. While this is far from a membership to the Jelly of the Month club that Clark Griswold got, buying necessities can still be a gift that keeps on giving.

New Holiday Traditions

  • Most of us have been to an ugly sweater office holiday party with a gift exchange. Well, you may want to consider bringing the gift exchange home from the office and into your own home. White elephant and secret Santa exchanges are great ways to add a little fun to your family traditions. If you are unsure how these gift exchanges work, I encourage you to look up the specific rules and find a variation that works for your family. My extended family has implemented both in recent years, and it has been a fabulous change. These games allow everyone to have fun while limiting the number of gifts you need to buy, saving money and stress, and can especially be beneficial in big families and families with older children.

Pro Tip: Utilize Your Normal Spending

  • This next point requires a disclaimer that necessitates you to be honest with yourself. If you are not comfortable with or able to handle debt and credit cards, please do not consider this as a viable option for you. However, if you are comfortable with credit cards and can pay down the balance every month, this may be a creative option for you to utilize during the holidays. (As a side note, it is not recommended to carry a balance on your credit cards as many of them have exorbitant interest rates.) Credit cards often offer rewards to incentivize you to sign up and use them. I like the cards that give you cash back, which tend to range from 1% to 5% depending on the type of purchase and category. The rewards that your regular purchases accumulate during the year can help you budget and offset your holiday spending. Every card is different, so I encourage you to do your research. CreditKarma, Nerd Wallet and other websites have resources to help you filter and find the right card for you.

Pro Tip: Shop Early

  • The early bird gets the best gifts”. While this isn’t exactly how the saying goes, it nonetheless tends to be true. Shopping early for gifts gives you time to shop around and compare prices. Furthermore, it allows you access to sales and discounts that may not be available during the holiday season. Better yet, this strategy keeps your loved ones at the top of your mind throughout the year. You might find an incredible deal and think, “Grandpa will love this!” If you do, just buy it. You will find your to-do list much shorter at the end of the year and your wallet will thank you for utilizing those mid-year deals instead of enduring holiday markups. (As an aside, the holiday season could also have deals as stores may mark down excess inventory closer to Christmas, so keep your eyes open if you need anything last minute!)

This time of year can undoubtedly be stressful, but I hope that these strategies help you navigate this season with financial prudence and allow you to put your focus on the things that matter most. Beyond the gifts and festivities, this season serves as a time to come together with those we hold most dear and celebrate the bonds we share, experience the joy of the season, and spread kindness to the world around us. No amount of inflation can ever take that away from us.

From my family to yours, I wish you a very joyous and blessed holiday season.

Connor Kasten is an assistant professor of finance in the College of Business’ Department of Finance and Insurance. He holds a doctoral degree in finance from the University of Tennessee and a B.B.A. in finance and economics from Georgia Southern University. Prior to his career in academia, he worked in management and financial advising.