Why consumers overspend during the holidays — and what to do about it

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The holidays are a time to express gratitude, reflect on the past year, and spend time with family and friends. However, if you’re not careful, this can also be the time you overspend on your holiday shopping.

A recent NerdWallet survey revealed that approximately 83% of Americans plan to buy gifts for friends and family this holiday season polling.

Americans expect to spend an average of $1,014 on Christmas or other holiday gifts in 2024, according to Gallup, a “significant increase” from the $923 reported last year polling Released on October 25th.

According to a NerdWallet survey, about 10% of consumers want to use money from their emergency fund to buy gifts, and 9% would prioritize gifts over household bills like utilities and debt payments.

A recent Ernst & Young report shows that nearly half of shoppers will take out a loan or credit card to cover their expenses this year poll. Meanwhile, NerdWallet found that 28% of people are still paying off credit card debt during the 2023 holidays.

Experts say people have an innate urge to overspend. They are “hard-wired” to be consumers, says psychologist, certified financial planner and behavioral finance expert Brad Klontz.

“Ninety-nine percent of the time on this planet, thinking about the long-term future doesn’t do us much good,” said Klontz, a member of CNBC’s Financial Advisory Board and CNBC’s Global Financial Wellness Advisory Board. “Meeting our immediate needs is what we’re all about. “

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The short-term gratification of giving gifts to loved ones can overshadow the long-term focus required to manage your money, Klontz said. That’s where many people fall short, he said.

“We may overspend because our long-term goals are more abstract, which actually requires an extra degree of cognitive processing on our part to delay immediate gratification,” he says.

Additionally, consumers may feel social pressure to spend more than they would like because they don’t want to appear “cheap,” says consumer finance expert Andrea Woroch.

Many companies also have sales during sales events such as Black Friday and Cyber Monday, which can trigger a “buying frenzy,” she said.

How to avoid overspending during the holidays

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Experts say there are a number of ways consumers can keep their holiday spending within reasonable limits.

Here are some of their suggestions.

Klontz says to create a spending plan now about how much you’ll allocate to the holidays. Even on Black Friday weekend, it’s not too late. Woloch said consumers can use gift list tracking apps like Santa Packs to track purchases and actual spending.

Don’t just think about gifts, Woloch said. There are many other potential seasonal expenses, including food for out-of-town guests or groceries for a holiday feast, holiday party outfits, family photos, greeting cards and postage, seasonal outings, dinners with friends, fundraisers for your children’s schools, and Donation campaign. You may need to cut certain costs or spend less on gifts to meet those needs, she says.

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Set gift expectations now with family and friends, Woloch says. That might mean focusing just on the kids or setting up a “Secret Santa” exchange so you’re responsible for one gift instead of many, she said. Perhaps find an activity that you can do together to replace material gifts. Or, set a gift budget and suggest a lower amount this year, Woloch says.

Use free rewards to offset the cost of the gift, Woloch says. For example, she recommends signing up for free retail loyalty programs to earn money back toward other gifts; shopping online through cash back portals like CouponCabin.com or Rakuten; and downloading browser extensions like Fetch to earn rewards. Or a free gift card.