Holiday spending in 2021

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As payroll employment rises and unemployment rates begin to ease, retailers in the US are preparing for record consumer spending this holiday season. The National Retail Federation has estimated that overall holiday sales will increase by 8.5 to 10.5 percent from 2020, with predicted sales between $843.4 billion and $859 billion. This increase is significant, especially compared to the overall 4.4 percent increase over the past five years.

Given this projected upward trend in holiday spending, retailers have hired more seasonal workers and are encouraging consumers to shop early to avoid pandemic-related supply shortages. At the same time, a survey conducted by Qualtrics indicates that many Americans are still feeling the financial fallout of the pandemic.

Of the 1,020 US adults polled, one-third reported that they do not feel financially stable. Contrary to the National Retail Federation projection, 76 percent of respondents say they plan to spend either the same amount or less than previous years. This survey also indicated that respondents are feeling financial stress and pressure to spend this holiday season, with 23 percent reporting that they expect to go into debt due to holiday purchases.

Impact on retailers

It stands to be a very profitable season for retailers if they are able to keep shelves stocked leading up to Christmas. However, a recent poll conducted by the management consulting firm McKinsey and Company suggests that supply shortages could still hurt many retailers as customers are generally not maintaining brand/retailer loyalty. When certain items are out of stock, only 13 percent of respondents were willing to wait for the retailer to restock. The majority of respondents, 70 percent, opted to look into other retailers/brands.

If a retailer is not able to get the stock they need and entice enough employees to keep up with customer needs, customers will shop elsewhere in the pressure to spend.

Pressure to spend

According to National Retail Federation’s president and CEO Matthew Shay, “Consumers are in a very favorable position going into the last few months of the year as income is rising and household balance sheets have never been stronger.” While it is true that many Americans are preparing to spend big this holiday season, there are many who are not financially prepared to do so.

A new poll surveying more than 2,000 Americans showed 40 percent of respondents feel obligated to buy gifts for at least one person while 41 percent are expecting to acquire holiday shopping debt. This is compared to 31 percent who said the same last year. Other studies have shown that nearly 1 in 3 Americans are expecting to acquire debt during the holidays. All of this data indicates that, while Americans are certainly feeling the pressure to spend on holiday shopping this year, gift buying is a source of financial anxiety for many.

Holiday debt

As unemployment and COVID-19 infections and hospitalizations begin to ease, many Americans are looking to achieve a sense of normalcy this holiday season. However, with pandemic-related supply shortages still impacting the consumer market and many Americans still feeling financially unstable after the past two years, it is more important than ever for consumers to prepare and consider all available options when it comes to holiday spending.

Holiday loans

Taking out a personal loan could seem like an attractive option if you’re looking for extra holiday funds. However, it is generally not a good idea to take out loans unless it is necessary.

Holiday loans are personal loans specifically designed for the holidays. They allow you to borrow money quickly, easily and without providing any collateral.  Holiday loans are generally less expensive than credit card debt, but you will still accrue interest and potential fees on top of your original debt.

Pros Cons
Lower limits than other personal loans (typical range: $500-$2,500) Shorter repayment terms lead to higher monthly payments
Few to no restrictions on how you spend the money Associated fees: origination fees, potential application fees and repayment fees
Generally lower interest rates than other personal loans Accruing debt when you may not need to

Home equity loans

Home equity is the overall appraised value of your home minus outstanding loan balances and mortgages. Building your home equity allows you to borrow against the value of your home and use those loan funds in virtually any way you see fit.

You can use your home equity to take out a home equity loan or home equity line of credit. These types of loans generally have lower interest rates, so the best uses of home equity loans are generally home renovations that add to your home’s value or large expenses that would have higher interest rates through other means.

While you could use a home equity loan to finance your holiday season, it is inadvisable to do so. Using those funds for non-necessities during the holiday season or any other time puts you at risk of an endless cycle of debt or even losing your home.

Pros Cons
Lower interest rates Borrowing costs/added fees
Flexibility of loan use Risk of losing your home
Accruing debt when you may not need to

Installment loans

Installment loans are loans that allow you to take out a fixed sum of money and pay it back over time. They typically include fixed interest rates and monthly payments, so there is no question about how much you owe each month. Personal loans, mortgages and auto loans are all types of installment loans.

Of these, personal loans are the most general loan type and can be used for all sorts of expenses. These loans are also typically unsecured, meaning that no collateral is required to qualify. However, just like any loan, you run the risk of negatively impacting your credit score if you fall behind on payments.

Pros Cons
Unsecured loans Borrowing costs/associated fees
Fixed interest rates and monthly payments Risk of hurting your credit score if you default on payments
Opportunity to boost credit score if payments are made on time Accruing debt when you may not need to

Alternatives to loans for holiday spending

It is always better to avoid taking on debt when possible. Here are some strategies for avoiding financial stress this holiday season.

Create a holiday shopping list

It is easy to get carried away when buying gifts for friends and family, especially when you don’t have a clear idea of what you’re looking for and where you can find the best prices. Creating an organized list of people you’re buying gifts for, gift ideas and prices from various retailers can help you keep your holiday spending budget on track.

Communicate openly with friends and family

The COVID-19 pandemic has caused tremendous financial strain for many, and Americans are still recovering from those setbacks. Even aside from these unprecedented circumstances, the holidays tend to be an expensive time for everyone. Talking to your loved ones about gift expectations, and potentially coming up with alternatives, can do a lot to ease financial stress. From gift exchanges to homemade gifts, there are many ways to participate in the gift-giving festivities without breaking the bank.

Get creative with gift ideas

Giving gifts to your loved ones does not have to cost a fortune. Taking the time to get creative with homemade gifts or time spent together can be a great alternative to material items. Another fun idea is a secret Santa gift exchange. You only have to buy a gift for one person, and it’s an opportunity to have some collective fun with your loved ones.

Start saving early

It is much easier to shop for the best deals on the items you want when you start preparing early. Particularly as items are going out of stock more quickly and prices and market demand are high, it is more important than ever to start budgeting and shopping early.

Bottom line

The holidays can be a stressful time in terms of finances, and the ongoing COVID 19 pandemic has left many Americans more financially stressed than ever. As the pandemic begins to ease and more people are beginning to see their finances stabilize, it is sure to be a big year for holiday shopping. However, supply shortages, higher costs and ongoing financial recovery mean that it is more important than ever to be strategic with your holiday financing.

If you are feeling the pressure of the holiday season, talk with your family about your options and try to avoid taking on unnecessary debt if you can.

Written by
Raija Haughn
Raija Haughn is an associate writer for Bankrate.com specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term.
Edited by
Loans Editor