IS SANTAREALLYTHEGRINCH?

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Is Santa really the Grinch?

We all seem to think that spending a lot of money at Christmas time is bound to helpthe economy. But are we right? Is Santa actually the Grinch? Let’s have a look atsome 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 concludesthat since gift-giving is a consumption choice made by someone other than the endconsumer leading to inefficiencies. For example, the $40 you spent on your Aunt’spresent would have been more efficient if you had just given her cash if she doesn’tvalue your gift that highly. This is more likely to occur than if the recipientovervalues the gift (in the example your Aunt might value the present at $48) asconsumer preferences are often mismatched. Basically, this just means that youcould be wasting great amounts of money on gifts that don’t benefit their user andtherefore have made a deadweight loss which can lead to reduced consumersentiment and reduced willingness to buy gifts in the future. Putting more thoughtinto your gifts and/or speaking to your recipient about their needs are the bestways to avoid this phenomenon.

Many economists disagree with this theory arguing that gift-giving is not purely amonetary debate and that many of the reasons people give gifts is social andsatisfaction based. Moreover, holiday spending consistently boosst the economyand creates hundreds of jobs; not just for those in front-facing industries likehospitality 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 inthe future and instead leaving them with gaping debts.

Due to the state of our economy, recent political changes, Europe’s instability andrising interest rates, studies have shown that Australians are less likely to takerisks with their money or spend extravagantly over the Christmas period. Theongoing fall of commodity prices hit our national economy hard and has offset anybenefits we would have received by increases in volumes. This is leading to anidentifiable lack of business and consumer confidence. But exports and trade are notthe only indicators of our worrying economy. Labour patterns including low wagegrowth coupled with

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The Scroogenomics of Christmas

high unemployment rates and job security fears create cautious consumers who aremore savvy with their hard-earned dollars. Unemployment is a key driver ofconsumption and the higher this figure, the bleaker the outlook for consumptionand by extension the economy. So what does this mean for you? While it may betempting to interpret this article as encouragement to save money (and we alwaysrecommend that), do not halt your spending altogether as doing so may haveconsequences for the broader national economy as key industries such as retail failto meet profit targets and sales goals; contributing to our “income recession”. Adecline in income is important to the domestic economy in one simple way: ifincomes aren’t rolling at the business end, then the government receives lessfunding in tax revenue and money doesn’t make its way down to workers which inturn affects consumer spending! It’s a never ending cycle.

The good news among all this gloom is that spending rose across the economy inOctober according to the Commonwealth Bank’s latest Business Sales Indicator(BSI). The report also shows that spending across 13 of the 19 industries rose inOctober . The Australian Retailer’s Association and Roy Morgan forecast $46.8billion to be spent this Christmas. And to help service the increased demand theretail sector creates an additional 30,000 jobs on average as well as providing extrahours 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 WorldBankconcluded that 55.8% of Australia’s GDP comes from household expenditure. Sowhat we need more than ever is for Christmas to be good for Australia byencouraging household consumption as this is good for the greater economy andwill lead to a positive snowball effect.

So what’s next?Don’t stop shopping altogether. While you may be concerned about the currentstate of the economy, checking out of normal shopping behaviours will havenegative effects down the track. What we recommend is to create a Christmasbudget and stick to it! Mozo conducted research at the start of 2015 and found thatfour in ten Australians were still feeling the pain of Christmas in February, with onein five saying that after Christmas they struggled to pay basic household expensesor had to cut back spending to do so. Plus, 36% either have higher credit card debtswith a high percentage of Australians seeking personal insolvency solutions in thequarter 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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- Use reward points to buy presents. If you’ve been collecting them for years butaren’t saving them for something why not put some of them towards gifts. Rewardoperators often do Christmas specials as well, allowing you to get the most for yourpoints.

- Make the most of price comparison websites to find the best deals. Tryshopbot.com.au, getprice.com.au, or use Google’s shopping tool (found on thenavigation bar).

- Cut back on some luxury household items in the few months leading up toChristmas. Saving a few dollars here and there on everyday items can add up in thelong run. You can also ask friends and family to “bring a plate” to your Christmasfeast so that some of the costs are shared.

- Utilise group buying sites like Groupon.com.au. You can get great deals for yourloved 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 $34per person but has a far bigger non-monetary impact on the person. You might end upspending 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 orintentions? Ask yourself why this may have happened and make active changes toimprove 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 morelikely you are to stick to it.

- Do your research about what gifts you’re going to purchase (if any) and compareprices and deals ahead of time. Create a plan and timeline of when you’re going toshop so that you’re not rushed at the last minute when you’re likely to spend anyamount 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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have to buy one gift. You can choose whether you want to buy anyone else gifts ontop 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 forsomething larger in the Boxing Day sales. This experience is not for everyone but itcan 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 tolay-by your gifts ahead of time. There are often mid-year sales you can takeadvantage 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 Christmasexpenses called TrackMySPEND. ASIC also offers a host of other great tools like aCredit 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 arelaxing and enjoyable break. Baker Affleck

Moffrey is here to help you manage your money thissilly season. Let Santa be Santa and don’t let your

spending become the Grinch. Contact us today!