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Tips for Reducing Stress as We Enter the Holiday Shopping Season

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The holiday shopping season is just around the corner, and if the past is prologue, then many Americans' stress levels will soar during the next couple of months. Who wouldn't want less stress during the holidays? Below are some tips and insights to keep stress down.

Research tells us that about half of consumers will experience increased stress related to holiday shopping. But the cause isn't that consumers hate to shop for gifts. Rather, it's shaky personal finances.

The state of consumers' finances is a big issue. The National Financial Capability Study found that roughly 60% of consumers report that, month after month, they find it difficult to pay all their bills. Holiday shopping just exacerbates the pressures these consumers feel.

What can stressed out consumers do? The short answer is to set holiday spending budgets and avoid carrying a lot of debt. After all, that is what the consumers who experience less stress do.

Setting budgets and carrying less debt might sound eminently sensible -- but for many it's easier said than done. Recent academic research tells us that financial literacy is a product of both nature and nurture. Whether you find setting and following budgets to be easy or hard, and whether you are disciplined about debt, depends in large part on a host of specific factors such as:

  • specific genes you inherited;
  • financial habits your parents instilled in you as you grew up;
  • financial courses you studied in school, including opportunities to play stock market games; and
  • practical experiences you have had managing your personal finances.

Because consumers vary greatly in their genes, parenting, education and experience, their behaviors also vary greatly. Only three out of five consumers set holiday budgets, and of these, only 60 percent do so as part of regular, year-round budgets.

Consumers can provide all kinds of excuses and explanations for not setting holiday budgets. Some will say they already have in their heads what they want to spend and don't need to write anything down. Some will say that they don't know in advance what they want to buy and therefore don't want to limit themselves through a budget. And some will be honest and admit that they don't set budgets because they can't keep to them.

Changing behavior is difficult for most of us. Research tells us that we need to do three things in order to change, namely:

1. know what to do;
2. feel motivated to change our behavior; and
3. avoid situations that will cause us to become discouraged.

Tips for knowing what to do: Developing a holiday budget is straightforward, and entails providing answers to the following questions:

  • What do I want to buy?
  • How much do I want to spend?
  • Where will I get the money to pay for my purchases?
  • If I borrow the money, how long will it take me to pay it back?

There are several tools to help with budgeting. Many consumers use envelopes that are dedicated to specific spending categories. "Envelope budgeters" place the exact amounts of money into the envelopes that they intend to spend on categories and then only pay for items from these envelopes. Other consumers use spreadsheets or personal financial software.

Insights into motivation: Fear is a primary motivator. Many who don't feel confident about their finances feel high stress and set budgets out of fear that their finances will crash. That is why stress levels are actually higher among budgeters than non-budgeters. Of course, it's not that budgeting increases stress. Rather, budgeting reduces already high stress levels among those with low confidence.

Tips to avoid becoming discouraged: Many consumers who need help both structuring budgets and managing their credit card debt turn to online websites operated by credit card companies. A real benefit of these websites is that they access the consumers' own financial data and expenditures and avoid requiring users to input data. The best of these websites are easy to navigate, have lots of useful features, help consumers stay motivated when it comes to sticking to plans, have call center options with operators ready to respond and are free.

Thirteen percent of consumers wait until the week before Christmas to do their holiday shopping, more than twice as many as the 6 percent who were planning to do so. But budgeters are more likely to do their holiday shopping earlier than non-budgeters.

Unfortunately, many consumers don't stick to their budgets: 40 percent spend more than they had planned, although only 26 percent admit to doing so. This means that many consumers engage in self-deception and aren't even aware that they have overspent their budgets.

Even with online help, some combination of genes, lack of parental guidance, poor financial education, or insufficient experience causes a minority of consumers to fail at managing debt responsibly, especially credit card debt. If you fall into this category, then here is a shopping tip: Think about using debit cards or cash, not credit cards: 62 percent of consumers primarily use debit cards or cash to pay for holiday purchases.

Although we are all different as consumers, there is a common message: Better budgeting makes for less stress and happier holidays.

Hersh Shefrin is a behavioral economist who holds the Mario L. Belotti Chair in the Department of Finance at Santa Clara University's Leavey School of Business.

He recently authored 'Born to Spend? How Nature and Nurture Impact Spending and Borrowing Habits.'

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