Five Things We Learned About Holiday Spending From Talking to a Couple of Economists

By Madeline Daniels, America Saves Communications Director

America Saves recently sat down with two economists who often have different views in the first of four conversations about savings issues that impact not only the national economy, but our families as well.

We asked Aaron Klein, a fellow of economic studies at Brookings Institution, and Mark Calabria, the director of financial regulation studies at CATO Institute, about the role of holiday spending in the nation’s economy. Click here to view their entire conversation. 

Here are five of our favorite facts, tips, and insights from the conversation:

1. Holiday spending creates an annual boom and bust bigger than the typical post-war recession

The annual change in economic activity from the holiday season to January is, on average, bigger than the typical post-War recession, Mark shares. To help visualize just how big of a share of our annual economy that is, he explained that we are on path to create about 2 million jobs in 2016. But during the holiday season alone, 900,000 temporary jobs will be created.

It’s not only a great opportunity to pick up a side job to help raise some cash for your share of the expected $600 billion in holiday spending this year, but it also means that many businesses are preparing for their most profitable time of year. In fact, some small businesses only turn profits during the holiday season.

But unlike the typical recession, we know the holiday seasons are coming and can prepare ourselves.  

2. The spending boom has already started

Now is the time to be planning your holiday spending. As Mark explains, the annual boom has already begun. It really starts at the end of summer during back-to-school shopping, leading into Halloween, Thanksgiving, and then Christmas and Hannukah.

 

3. Our earnings and spending are mismatched over time, but especially now

People’s earnings and spending are typically mismatched over time. It seems like we never receive windfalls at the same time we need to replace our tires, for example. But the biggest temporal mismatch between savings, earnings, and spending occurs at the end of the year, according to Aaron. For many, that means there’s much more money going out than coming in during the holidays, and many find themselves taking very expensive short-term loans to bridge that gap.

 

4. Save automatically

It’s a simple truth of behavioral economics that when people receive a windfall of cash, they’re more likely to save than they are to save a small amount over time, Aaron explains. Hack that psychology by linking your checking account your savings account and setting up automatic transfers, periodically or when your account reaches a certain amount. You’ll be prepared for the holidays with a stack of cash and a cushion against hefty overdraft fees.

 
The good news is there are things that we can do to help even out the difference between our earnings and spending over the holidays, no app required.
 

5. If you think you’re going to be cash-strapped heading into the holidays, slow down now

When asked how to best prepare for the holiday boom and bust, Aaron’s advice is if you’re cash strapped in November, it’s time to slow down. Pack your lunch instead of buying it at work. Empty the cupboards before buying new groceries. Or work out with your friends and family a different gift-giving schedule. Maybe you cover the costs of a summer camp instead of a something you can hold in your hands right now.

 

And if you need some extra green for your holiday shopping, consider picking up one of those 900,000 temporary jobs this year.

Looking for more? See five more things we learned about holiday spending from talking to a couple of economists here

 

Tip of the Day

  • Written by Guest Blogger | September 30, 2014

    Develop a long-term plan and foundation for financial readiness by establishing a spending plan. More tips at: http://ow.ly/sCvQQ

Saver Stories View all »

Setting a Goal Leads to Success

Written by Super User | May 24, 2019

Growing up, Marisa’s dad had always talked about saving first, but she said she didn’t really internalize it until much later. “I was drifting along with no plan, carrying a little bit of revolving debt, saving some money here and there, but without a real plan for it.”

Read more...

Involving Kids in Family Finances

Written by | April 19, 2019

 

One of the best lessons we can share with our kids is about money. By middle school, kids should have a good understanding of how money works as well as the importance of saving.

Read more...

When You Start Small, Saving is Easy

Written by Lila Quintiliani | August 12, 2019

When Attiyya first got married, she and her Marine husband had just graduated from college and were focused on paying off student loan debt. They had both attended private schools and had sizeable loans. Then three months after the wedding, the couple found out they were pregnant with their first child.

The first year of their marriage, says Attiyya, was a balancing act between paying down debt and saving for the future.

Read more...