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What to do when Santa is broke

By BrianOConnor · Bankrate.com
Thursday, December 19, 2013
Posted: 5 pm ET

From retailers playing Christmas carols during August back-to-school sales to stores opening for Black Friday shopping right after Thanksgiving dinner, it seems like every few years, Americans get a new -- and very lousy -- holiday tradition.

But for the seventh straight season, one lousy tradition seems to remain: Santa is broke.

Ever since the U.S. economy collapsed during 2007, we've managed to make a holiday tradition out of earning less and worrying more. According to the Economic Policy Institute, between 2002 and 2012, wages were stagnant or declined for 70 percent of wage earners. Inflation has turned what was $1 in 2002 to just 77 cents today. In addition to the decline in real wages, 10.9 million workers were still out of a job during November, including more than 4 million who've gone without a paycheck for more than six months.

So what's a family to do to pay for the holiday gifts and all that goes along with it?

The $1,000 Challenge

Brian J. O'Connor is the author of "The $1,000 Challenge."

Maybe you've papered over the holidays with plastic, running up credit card accounts, or raiding your savings, putting a little less in the college or retirement fund, or scraping and scrounging. Maybe you've been lucky and the "new normal" of our glacial post-recession "recovery" is hitting you just now. Or maybe you've tried to fool your family with a garland of excuses and apologies.

But if money is tight at your house, maybe it's time to level with the kids -- and yourself -- and admit that Santa is stretched for cash. So how do you do it?

Your first step is to break the news right away that your family needs to cut back this holiday season, instead of waiting until you're all watching "Rudolph the Red-Nosed Reindeer" on Christmas Eve. Even though you've got less than a week, you still have time to plan your strategy and get your kids involved, instead of feeling like victims who got stiffed.

It might be difficult, but by adjusting your family's expectations -- including yours -- you can not only have a happy holiday, but also teach some important lessons in financial responsibility.

If the kids feel put out, make it a point to describe how Mom and Dad are cutting back, and what you're giving up to stretch the family's dollars. You not only set an example, but also show that sacrifices are being made all around. Whatever you do, don't say, "We're broke." That's only going to frighten the kids and is almost as bad as saying nothing. You don't want the kids to suddenly have visions of your family pushing a shopping cart down the alley. Instead, focus on the need to make choices about where your money goes and on having the kids learn to spend money wisely.

In your sit-down, get the whole family involved and discuss what is and isn't important to each of you at the holidays. Is it seeing family? Entertaining at your home? Ask each person what presents they liked most last year and you might find they hardly remember any of their gifts. That's one of the main keys to a great, inexpensive holiday: Substitute experiences for gifts.

If your holidays usually involve a family trip, get the whole family involved in planning a substitute holiday "staycation." Set a budget and let each family member plan a day of outings during Christmas break. And don't forget to take advantage of all the freebies around the holidays. Break out the thermos and fill it with cocoa before driving around town to see those huge Christmas displays. Or, if family members decide they still want presents, forgo a pile of individual presents and focus on one gift where you all combine your spending.

You can also get a bucket, gather the family and a timer and let everyone scramble to collect loose change and unused gift cards lying around the house. The advisory firm CEB TowerGroup forecasts that consumers will leave $1.7 billion on unspent gift cards this year. Instead of letting them gather dust in your dresser, use them to buy gifts, regift them or sell them online.

Once you've decided on a course of action, put together a budget and start gathering ideas. If you've already put the holiday on plastic, organize a post-New Year's garage sale to pay it off or ask the kids to opt out of some of their allowance. You can also try canceling cable for a month or two to cut your debt. The big lesson here is to choose between what's important and what you can give up.

Whether you cut back on spending or redirect some of your money toward the holiday (or its debt), just make sure to get everyone involved to keep smiles all around this holiday.

Brian O'Connor is the syndicated "Funny Money" columnist for The Detroit News and author of "The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese" now on sale from Portfolio Books.

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