Editors' pick: Originally published Nov. 18.
Holiday shoppers have one fatal flaw in their budgeting plan: their kids.
In one particularly discouraging holiday survey of 1,000 parents by financial firm T. Rowe price, many parents say they've overextended their finances to pick up every item on their kids' holiday wish lists. Even worse, 25% of parents have either taken from their 401(k)s or their emergency funds or taken a payday loan to cover holiday spending.
For some perspective on just how much money this ends up costing parents throughout the holiday season, the average amount spent on a child ages 8 to 14 was $422, with a median spend around $300. However, 34% of parents spent $500 or more on their 8 to 14 year old child. When 64% of parents say, "I spent more over the holidays than I should have," they mean that their kid accounts for more than a third of the $935.58 that the National Retail Federation says parents plan to spend during the holiday season for everything from gifts to decor and holiday dinner.
No one wants to be a Scrooge. "Between our inclination to be generous during the holiday season and the blockbuster retail deals, playing Santa can be kryptonite for even the savviest budgeters," says Marty Allenbaugh, a certified financial planner at T. Rowe Price, says, "But splurging a little shouldn't turn into indulgence at the expense of financial well-being."
In some cases, that's exactly what's happening. About 53% of parents say they "try to get everything on my kids' lists, no matter how much it costs." Meanwhile 58% of parents admit they "never stick to my holiday spending budget." While that's only less than ideal for the 68% of parents who save for the holidays throughout the year, it's a disaster for the 25% of parents who have, at some point, pulled from either their retirement account (11%) or emergency fund (14%) or taken a payday loan (11%) to cover holiday spending. Just as bad: the 16% of parents who take more than six months to pay off credit card bills from holiday shopping.