- Centre for Decision Research
“Black Friday/Red Monday”, “Merry Christmas Coronary”, “Happy New Year Heart Attack”…
These are just some recent headlines in relation to the annual financial splurge that so-characterises the festive period here in the UK. If the headline to this article reads familiar, it’s because I also looked at festive finances this time last year (spoiler: debt features heavily).
As a psychologist interested in financial decision making, the Christmas and New Year period is one that causes me both great intrigue and measurable consternation. It seems that every year there are reports of record new levels of spending and borrowing, and relatedly, of debt. (Try Googling “Christmas debt” and you’ll see the severity of the situation.)
Yet, despite these widespread reports research by Rubicon Project marketing agency finds that 77% of UK adults plan to spend the same or more than last year. For Christmas 2015, the figures of note were:
- UK households spent on average £795 towards Christmas, with 60% of this going towards gifts, and 27% on food/drink (Centre for Retail Research), making Brits the highest spenders in Europe.
- November 2015 saw the largest month-on-month increase in borrowing since February 2008 (BBC), totalling £178bn, with credit card borrowing in particular increasing by 6% on November 2014 (Bank of England).
Each year we consistently see Christmas-related “debt-hangovers”, with 1 in 8 people struggling to cover household bills in January (Money Advice Trust), and with some people still paying for the cost of Christmas as far into the year as August (Debt Support Trust).
This year, as expected, is set to smash new records: John Lewis just posted a new weekly revenue record (£200m) over Black Friday, for instance. There are already early rumblings of record-levels of credit card debt in October 2016. I have no doubt that, come January, we will again hear of record-levels of debt, and of surges in calls to debt advice charities. But what is it about Christmas that seems to draw people into frenzied spending and, in many cases, problematic debt?
Recently, my colleagues and I published an article in Personality and Individual Differences that shows that people’s psychological coping styles are directly related to their levels of Christmas spending and borrowing. Here we mean that the characteristic way in which someone responds to stress seems related to their financial behaviour.
In short, those who tend to “deny” (think “bury head in the sand”) borrow higher amounts, while those who are stressed but do not communicate this are more likely to borrow. Those more prone to directly acknowledging and confronting their stress spend less.
We know that Christmas is an incredibly stressful time for people (especially parents); ING report that 44% of people feel forced to spend more at Christmas, with 76% feeling Christmas too heavily emphasises expenditure.
Yet, others feel wholly different; the same ING report notes that 49% of people “allow themselves not to worry about spending”. Elsewhere, people see Christmas as a time to treat yourself: 38% of millennials, in particular, intend to spend an average of £257 on themselves at Christmas (Rubicon Project).
In related research, we aimed to try and capture what kinds of factors might relate to people’s willingness to spend and/or borrow in the lead-up to Christmas. We conducted interviews with people recruited throughout Leeds in which we asked them about their feelings and sentiments about Christmas, and their financial behaviour at this time.
The result was an exhaustive account of the interviewees’ thoughts about topics such as what Christmas means to them; the kinds of factors that influence people’s thoughts and behaviours at this time; and finances at Christmas.
We then used insights from the interviews to guide the subsequent development of a survey used to gauge the wider prevalence of the key issues arising out of our interviews. A particular strength of this methodology is that we developed our own questionnaires in line with what we learned from the interviews.
To illustrate, we constructed a survey to assess the kinds of factors that best-represent the “meaning of Christmas” based on the most frequently-occurring observations noted by interviewees. We also constructed questionnaires to assess people’s willingness to spending/borrowing in the same manner.
Factors associated with increased willingness to spend or borrow included feelings and sentiments such as spending more as a sign of caring or as a means to impress; trying to match what others spend; finding it easier to borrow than to save; and borrowing in order to be able to afford more expensive goods.
Next, we took all of this information and assessed the relative extent to which factors such as what Christmas means to people, as well as other important considerations such as people’s financial circumstances, their materialistic tendencies, and their general levels of positive and negative mood all could predict people’s overall willingness to spend or borrow.
Key predictors of increased willingness to spend included higher levels of negative mood (people “feeling down”), seeing Christmas as a time for self-indulgence, and having stronger materialistic values (particularly in relation to buying goods to increase happiness, or buying to increase self-esteem).
For willingness to borrow, materialism relating to happiness, and negative mood again were again important, however, an important distinction was that more practical financial factors also now played a role: experiencing greater financial hardship, and being less proactive in managing one’s finances were related to increased willingness to borrow.
Notably, a follow-up survey a few months later determined that people who had shown higher willingness to spend/borrow did indeed end up actually spending/borrowing higher amounts.
Perhaps most salient in this research is that it’s not simply poor money management that may account for increased spending or borrowing. While typical attempts to encourage people to avoid Christmas “debt hangovers” are centred on promoting careful financial planning, the psychological stress of the time, and the urge to let ourselves off the hook for treating ourselves, may simply prove too challenging for all but the most conscientious budgeters.
So-called “emotional spenders” are more prone to impulse buys. It’s thus advised to avoid shopping trips when feeling stressed or blue. When it comes to temptations, the pertinent question to ask is perhaps not “Can I afford this?” but rather “Should I buy this?”.
A further, practical suggestion to better-manage spending at Christmas is to insist on paying by cash. When it comes to cards, we might be best to “always leave home without it”, as cards increase our willingness to spend. People are also less likely to recall what they’ve spent if they purchase via credit cards, for instance. As one interviewee told us:
When people use cards…I don’t think they see it as spending real money…it’s almost like spending Monopoly money. Buy now, worry about the cost later.
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