Holiday Shopping, Marketing and Credit Card Debt

     Well, the holidays are here and so are their accompaniments of marketing advertising strategies. Pay attention this holiday season to the messages that advertising delivers to our eyes and ears. Many of these ads promote doing things for others, and being nice because “t’is the season.” Are these ads there to promote love, or are they to get you to spend money. We suspect it is to get your money, and to get you to spend more than you would if you were not dealing with the guilt that the advertising exploits.

     Let us consider some strategies that marketers use to get you to spend more money: improved customer rewards and frequent customer rewards. These messages promote several things. The first is that if you use their credit card and/or spend a certain amount of money you get a discount of say 10-15% as an example. The second is offered if, for example, you purchase things over a specified period of time, then you get reward points that you can cash in. In either case, you potentially end up with more credit card debt if you charge your purchases. You also probably end up spending more money than you wanted to. They are counting on you saying "okay, let’s get it." What is so nice about this? You have to spend more money to get your discounts. What happens when you spend more money? You go further into debt. What happens when you go more into debt, you will spend more time getting out of debt in the future.

     Another strategy: the store where you are buying merchandize is offering to donate money on every purchase to go to some charity. While this is nice, why do they primarily only promote and do this type of contribution during the holidays? Well it is because they know that we, as consumers, are dealing with satisfying our guilt over load. We were taught since we were kids to spend money purchasing gifts for people who we interact little with throughout the year. The company is offering to donate so that you will spend more. What happens when you spend more? Well, same thing – you cannot buy the home you want to buy.

     What is the real reason for the holiday season? Is it to be tempted by the price tags and seemingly irresistible sales or spending quality time with loved ones? Well, according to the holiday advertising, primarily Christmas advertising, that starts to show up sometime in October it is price tags and sales. Have you ever seen an promoting just going to grandma’s house for no other reason than to go?

     When the holiday advertisements begin to show up, Americans begin to write their “Dear Santa” lists. Adults are compelled to listen, especially to their children’s lists so that they can keep them believing in Santa. Other reasons to listen are so that the holidays can be made special with that one special gift. Our relationship to the holidays and enjoying them has devolved into, quite intelligently by the marketing industry, purchasing gifts to substitute for feelings of love, compassion, warmth, and a sense of belonging.

     As children we are targeted early on in our lives. According to Susan Linn, who wrote “Consuming Kids: The Hostile Takeover of Childhood”, advertising to kids has increased about 2.5 times the levels in 1992 to over $15 billion annually. Approximately 80 percent of all global company brands use some sort of adolescent strategy, according to Juliet Schor, who wrote: “Born to Buy: The Commercialized Child and the New Consumer Culture.”  It is no wonder where so much pressure comes from for parents to answer to their kids’ demands. Likewise, it is no wonder why we are growing up bombarded with knowing that the holidays are about giving gifts to show our “love” versus doing a good deed, or visiting a loved one.

     Are you planning on buying a home next year? Well, consider that if you spend “more” money this holiday season to get your discounts then you might be limiting your ability to purchase a home next year. This is because of two things: a higher debt to income ratio and less money available to for down payment and closing costs. I guess it is not that big of a deal, an extra $120/month in bills will lower the loan amount on a home that a typical consumer can purchase by around $20,000. The typical consumer that I’m speaking about is one that has a regular full time job, can provide proof of income, and have credit scores above 620.

     One last thing to consider about spending above your means this year is what happens to your savings account next year. Are you dipping into it to pay off your debt, or are you not putting anything into it because you are making extra payments to get out of debt? In either case, if you are looking to buy a home, you are limiting your ability to have money for a down payment. While there are loan programs that would work for you with low to no down payment, your options with less money are limited.

     Consider where you spend your money this holiday season. What you do now, may impact you long into the future. For ideas on how to save extra money see our article on getting out of debt the old fashioned way.