An in-depth look at how Christmas spending really affects your personal finances and the general economy. Is it good or bad to spend big at Christmas? The article also provides some great money-saving tips for managing your silly-season spending.

1. IS SANTA
REALLY
THE
GRINCH?
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02.

2. Is Santa really the Grinch?
We all seem to think that spending a lot of money at Christmas time is bound to help
the economy. But are we right? Is Santa actually the Grinch? Let’s have a look at
some different perspectives.
An American economist by the name of Joel Waldfogel, believes there is an inherent
“deadweight loss” which is experienced at Christmas. In short, his theory concludes
that since gift-giving is a consumption choice made by someone other than the end
consumer leading to inefficiencies. For example, the $40 you spent on your Aunt’s
present would have been more efficient if you had just given her cash if she doesn’t
value your gift that highly. This is more likely to occur than if the recipient
overvalues the gift (in the example your Aunt might value the present at $48) as
consumer preferences are often mismatched. Basically, this just means that you
could be wasting great amounts of money on gifts that don’t benefit their user and
therefore have made a deadweight loss which can lead to reduced consumer
sentiment and reduced willingness to buy gifts in the future. Putting more thought
into your gifts and/or speaking to your recipient about their needs are the best
ways to avoid this phenomenon.
Many economists disagree with this theory arguing that gift-giving is not purely a
monetary debate and that many of the reasons people give gifts is social and
satisfaction based. Moreover, holiday spending consistently boosst the economy
and creates hundreds of jobs; not just for those in front-facing industries like
hospitality and retail, but also for manufacturing, imports/exports and transport.
While our shopping expenditures do inject a large amount of cash into our economy,
it also contributes to rising credit card debt and trade deficits. Lost in the ever-
engulfing wave of consumerism we have forgotten how to save enough to invest in
the future and instead leaving them with gaping debts.
Due to the state of our economy, recent political changes, Europe’s instability and
rising interest rates, studies have shown that Australians are less likely to take
risks with their money or spend extravagantly over the Christmas period. The
ongoing fall of commodity prices hit our national economy hard and has offset any
benefits we would have received by increases in volumes. This is leading to an
identifiable lack of business and consumer confidence. But exports and trade are not
the only indicators of our worrying economy. Labour patterns including low wage
growth coupled with
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The Scroogenomics of Christmas

3. high unemployment rates and job security fears create cautious consumers who are
more savvy with their hard-earned dollars. Unemployment is a key driver of
consumption and the higher this figure, the bleaker the outlook for consumption
and by extension the economy. So what does this mean for you? While it may be
tempting to interpret this article as encouragement to save money (and we always
recommend that), do not halt your spending altogether as doing so may have
consequences for the broader national economy as key industries such as retail fail
to meet profit targets and sales goals; contributing to our “income recession”. A
decline in income is important to the domestic economy in one simple way: if
incomes aren’t rolling at the business end, then the government receives less
funding in tax revenue and money doesn’t make its way down to workers which in
turn affects consumer spending! It’s a never ending cycle.
The good news among all this gloom is that spending rose across the economy in
October according to the Commonwealth Bank’s latest Business Sales Indicator
(BSI). The report also shows that spending across 13 of the 19 industries rose in
October . The Australian Retailer’s Association and Roy Morgan forecast $46.8
billion to be spent this Christmas. And to help service the increased demand the
retail sector creates an additional 30,000 jobs on average as well as providing extra
hours to existing retail workers. Queensland is expected to spend approximately
$9.5 billion in the 30 days before Christmas. Last year a report by the WorldBank
concluded that 55.8% of Australia’s GDP comes from household expenditure. So
what we need more than ever is for Christmas to be good for Australia by
encouraging household consumption as this is good for the greater economy and
will lead to a positive snowball effect.
So what’s next?
Don’t stop shopping altogether. While you may be concerned about the current
state of the economy, checking out of normal shopping behaviours will have
negative effects down the track. What we recommend is to create a Christmas
budget and stick to it! Mozo conducted research at the start of 2015 and found that
four in ten Australians were still feeling the pain of Christmas in February, with one
in five saying that after Christmas they struggled to pay basic household expenses
or had to cut back spending to do so. Plus, 36% either have higher credit card debts
with a high percentage of Australians seeking personal insolvency solutions in the
quarter straight after Christmas. The odds are stacked against us during this season,
but those who do manage their money during this time followed some easy tips:
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4. - Use reward points to buy presents. If you’ve been collecting them for years but
aren’t saving them for something why not put some of them towards gifts. Reward
operators often do Christmas specials as well, allowing you to get the most for your
points.
- Make the most of price comparison websites to find the best deals. Try
shopbot.com.au, getprice.com.au, or use Google’s shopping tool (found on the
navigation bar).
- Cut back on some luxury household items in the few months leading up to
Christmas. Saving a few dollars here and there on everyday items can add up in the
long run. You can also ask friends and family to “bring a plate” to your Christmas
feast so that some of the costs are shared.
- Utilise group buying sites like Groupon.com.au. You can get great deals for your
loved ones or even yourself!
- Consider getting a group of family and friends together and deciding on one big-
ticket item per person. A $200 present between six people works out to be about $34
per person but has a far bigger non-monetary impact on the person. You might end up
spending less than you would on an individual present for that person.
- Reflect on how you went last Christmas and the year before. Were you over budget?
Did you feel pressured to create a Christmas that was beyond your means or
intentions? Ask yourself why this may have happened and make active changes to
improve this year.
- When creating your budget, be as detailed as possible including gifts, food,
decorations and time considerations. The more detailed your budget is, the more
likely you are to stick to it.
- Do your research about what gifts you’re going to purchase (if any) and compare
prices and deals ahead of time. Create a plan and timeline of when you’re going to
shop so that you’re not rushed at the last minute when you’re likely to spend any
amount just to get what you want.
- If you usually have a big Christmas, consider doing “Secret Santa” so that you only
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5. have to buy one gift. You can choose whether you want to buy anyone else gifts on
top of this but at least you know everyone will get something with this arrangement.
- Try buying a small gift for your family members, but agree to go shopping for
something larger in the Boxing Day sales. This experience is not for everyone but it
can be fun and exciting and there are definitely many hot bargains around.
- If you know you’re going to be tight on funds towards the end of the year, try to
lay-by your gifts ahead of time. There are often mid-year sales you can take
advantage of, and you often have the option to pay the costs off over time. This
option takes some serious organization though!
- ASIC offers a great app to help you track and monitor different types of Christmas
expenses called TrackMySPEND. ASIC also offers a host of other great tools like a
Credit Card Payback Calculator and Savings Goals Calculators that can help you save.
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So good luck this Christmas and we hope you have a
relaxing and enjoyable break. Baker Affleck
Moffrey is here to help you manage your money this
silly season. Let Santa be Santa and don’t let your
spending become the Grinch. Contact us today!