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Responsible Holiday Spending

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The holiday shopping season is in full swing. Millions of Americans are searching for that perfect gift for that special someone. But in the rush to pass along some of that good cheer, remember: enjoying the holidays doesn't require financial recklessness.

While often that may be a lesson that goes unheeded, this year, according to a recent ING Direct survey, Americans seem to have learned the pitfalls of piling up credit card debt. About three-quarters say they plan on using cash or debit cards to pay for holiday gifts instead of using credit cards.

So rather than breaking the bank and racking up credit card debt, the survey found that more than one-third of Americans say they are able to pay off holiday debt in one month or less, and just over one in 10 say it will take them more than two months to pay the holiday bills.

With continued economic turmoil cutting heavily into the income of average Americans, 2011 is the holiday season to be a smart shopper and budget-conscious consumer. According to data from the Census Bureau, median household income in this country dropped 6.7 percent between June 2009 and June 2011 -- from $53,518 to $49,909. A key to being a successful shopper with an eye on your bottom line is to recognize the value of long-lasting gifts instead of springing open the wallet on the latest holiday fad.

In response to an increase in spending, businesses are gearing up for a major jump in demand. The National Retail Federation is estimating a stunning $465.6 billion in holiday sales this year -- up 2.8 percent from 2010. Online retail sales alone are expected to jump 15 percent this winter over last and will total nearly $60 billion, according to Forrester Research.

Most ING Direct survey respondents -- 72 percent -- say they plan to spend the same or more than they did in past years. With that in mind, don't get swept up in the blind consumption. Be mindful of what you purchase and for what price. Being responsible doesn't mean going without good holiday cheer -- but it does take a little bit of planning.

For starters, don't rack up credit card debt. It is so tempting to put a big holiday purchase on plastic and promise to pay it off before the next billing cycle. Too often, that just doesn't happen.

Also, consider buying the gift of stock for your kids. It's an excellent way to introduce them to the world of finance. Pick a stock in a company that your child is likely to have an emotional connection to. Then commit to following that stock's performance over the course of 2012.

No matter if the stock price drops or increases, the real value is in familiarizing a young mind with the nature of finance. They're getting an early and fun opportunity to educate themselves in essential concepts like short-term vs. long-term gains, market volatility, etc.

In the long run, that knowledge will be much more valuable than some plastic gizmo they get bored of within a week of ripping off the wrapping paper.

The lack of financial literacy is a real problem among today's young people. One analysis from the non-profit National Jump$tart Coalition found that less than half of high school seniors grasp even basic financial concepts. And young, financially illiterate kids tend to grow into financially reckless adults. No doubt one big contributor to the country's huge debt problem today is that people weren't getting the financial education they needed during their formative years.

You can do your part to ensure that the children in your life don't fall into the ranks of the financially illiterate. Buy them some stock this winter and kick-start a life-long commitment to financial education.

Next, automate your investments and savings right now -- before the real holiday spending surge. If you haven't done so already, fill out the paperwork with your employer to have a preset slice of your salary diverted to your retirement and savings account every pay cycle Do your future self a favor.

And any money you automatically invest could grow by this time next year. Over the long term, stocks will still be a good investment. Instead of racking up more disposable and instantly forgettable holiday treats, you'll be building an asset that can provide financial security for you and your family for decades to come.

You don't need to be a scrooge to retain financial responsibility this holiday season. You can still buy gifts for those you love while making sure you'll be in a strong shape money-wise come January.

Dan Greenshields, CFA, is President of ING DIRECT Investing, a subsidiary of ING Bank, fsb.