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How to Control Christmas Spending

People always spend more at Christmas and this year the cost of presents and parties is likely to skyrocket to make up for the dreary time everyone had in lockdown last year.

However, with rising inflation, spiking energy costs and the threat of reintroducing restrictions, two out of every five people are planning to spend less than usual.

So, how much are households cutting back on Christmas, and why are grandparents likely to be more profoundly impacted than their younger family members?

How Cost of Living Increases Are Impacting Older People

Living costs are climbing across the board:

  • 65 per cent of people report that their monthly living costs have increased.
  • 87 per cent of shoppers feel that food has become more expensive.
  • 77 per cent of homeowners are paying higher energy bills.
  • 76 per cent of commuters and travellers experience steeper fuel prices.

One of the glaring disparities here is that the older you are, the more likely you are to be struggling financially without the contingency budget to flex your spending around increased costs.

Indeed, 91 per cent of people aged 50-69 are trying to balance an overburdened budget, compared to 93 per cent of over 70s.

Energy bill increases are also affecting families, with gas and electricity prices in the UK ramping up 18.8 per cent and 28.1 per cent year-on-year, respectively.

These figures from the December Office for National Statistics (ONS) survey showcase why seasonable spending may be different this year than usual and the strain that living costs are placing on the shoulders of our retired communities.

Fixed pension income and less financial resilience are serious problems.

They can mean that less affluent retirees need to choose between heating and food, Christmas gifts and hot water – so it’s clear that a frugal festive season might be the only option.

Borrowing to Budget for Christmas

Commonly, financial pressure means reliance on lending – with all the issues associated with short-term, unsecured loans and heavy spending on high-interest credit cards.

We haven’t yet seen a massive rise in borrowing, possibly due to the widespread reporting of inflation and an awareness of the true cost of taking out credit.

Another factor may be the increase in the average household savings ratio, which jumped from 8.9 per cent in quarter one of 2020 to 25.9 per cent in quarter two, as reported by the House of Commons impact assessment.

While overall savings may have decreased back down to 14.3 per cent in quarter three, it’s clear that millions of households made significant savings when lockdown curtailed holidays, entertainment and social spending.

In the ONS survey mentioned earlier, only 16 per cent of respondents reported that they had borrowed more in the last month.

Older generations are also less likely to resort to debt, with only five per cent using credit cards or other borrowings to tide them over.

The wider consideration here is that resilience is at an all-time low. The emergence of the new Omicron variant and the manic rollout of a new booster programme have made anxieties and stress resurface and could potentially put incomes at further risk.

Energy price caps are set to rise again in April 2022, so whether we’ll remain a careful nation, spending slowly while living costs stabilise remains to be seen.

Christmas Cut Backs in 2021

A quarter of those families who have decided to make Christmas a little less flashy this year have agreed on reduced spending and celebrations with their loved ones.

The financial crunch means that many people have less to spend since everyday expenses such as energy bills mean their expendable income has taken a big hit.

Festive spending isn’t quite equal nationwide, with the highest spending regions in descending order being the East Midlands, South West, and London.

Let’s look at a breakdown of how households are scaling back Christmas and what sort of savings they expect to make:

  • The average spend on gifts is from £100 to £250 (the budget for 28 per cent of people). Around 40 per cent are spending less than in a regular festive season.
  • Half of those paring back celebrations are doing so because of a drop in income, while 11 per cent don’t wish to worsen their existing debt situation.
  • Only five per cent of respondents intend to spend over £1,000, but 13 per cent have no idea what they will spend or how they will finance it.

Five Easy Ways to Reduce the Cost of Christmas

There’s no question that Christmas can get very expensive, especially if you have a large family, host parties, or need to buy presents for children with their eyes set on costly consoles.

However, keeping your finances under control is essential for peace of mind and to ensure you don’t spend the rest of next year making up for it.

Let’s look at the five simple ways to take back control:

1. Create a Festive Household Budget

If you have a finite budget agreed with your family, you have a tangible target and can make informed decisions before spending any cash.

It’s easy to get carried away and fall for impulse buys, but sticking to a maximum budget will avoid going above your means.

2. Prepare Everything Ahead of Time

Thousands of people rush around trying desperately to find a last-minute present on Christmas Eve, and it’s a great way to spend a lot more than you intended.

Your budget won’t spiral if you build sufficient time to make mindful decisions about each cost.

3. Take Advantage of Sales

The Black Friday phenomenon is a great example of retailers using trends to attract higher sales volumes, and if you shop around (and check what a product normally costs), you can get an amazing deal.

Other options include referral codes from friends, cashback websites to add a small financial cushion to online shopping, or waiting for offer periods before purchasing gifts or party food.

4. Avoid Buying Unnecessary Gifts

We’re all tightening our belts this year, so conversations about money are far less taboo.

Never avoid talking about the costs of your celebrations, and look at solutions such as doing a Secret Santa or setting a spending limit, so you don’t feel pushed to spend more than you have.

5. Make Christmas Dinner a Family Affair

Finally, the responsibility of paying for Christmas often falls to the host by default – but asking family and friends to contribute, say one person providing dessert and another a bottle of wine, splits the costs more fairly.

Food prices have risen, so this is a nice way of asking everybody to get involved, without causing any individual a problem with trying to finance a lavish meal for a large number of guests.

What Does the Average UK Household Spend on Christmas?

It depends on whom you ask and where you live. The Bank of England estimates that most households spend around £740 more in December, almost 30 per cent higher than any other month of the year. YouGov reports that the average spent on gifts hits £381.60, and total festive spending is £1,116. However, in 2021, around 40 per cent of people have decided to cut back on that spending due to other financial priorities.

How Much Has the British Cost of Living Increased in 2021?

Inflation in the UK is reaching levels far above the governmental targets, hitting 4.2 per cent in October 2021 – the highest rate in almost a decade. Prices are rising due to worldwide energy increases, shortages of consumer goods, the end of support schemes that were in place during the pandemic, and lack of haulage workers meaning that deliveries are taking longer and costing suppliers more.

Why Do We Have Less Money to Spend on Christmas This Year?

The general living cost increases apply to just about everybody, with things like filling up your fuel tank and doing your weekly shop all adding more to your household budget than a year ago. Some households saved considerable amounts during the lockdown and rely on those savings to finance Christmas, but many more have chosen to limit their spending.

Which Societal Demographics Do Inflation and Price Rises Hit Worst?

As we discussed earlier, rising living costs disproportionately impact retirees and the elderly.
Earning a fixed pension means that their earnings can’t flex or increase. Retirees will be unlikely to receive any additional payment to cope with higher living expenses until the next tax year.

How Can I Finance Christmas Without Getting Into Debt?

The best way to prepare for a stress-free Christmas is to set a budget and be honest if something is beyond your means this year. Lots of households are agreeing to maximum gift values or sharing the costs of celebrations to avoid taking out short-term debt to enjoy the 25th December.

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