It's no secret that the holiday season often leads to overspending. And new data from Discover reveals that one generation may be at risk of going overboard.
A good 35% of millennial consumers expect to spend more this holiday season than last year. By contrast, only 16% of baby boomers, 23% of Gen Xers, and 26% of Gen Zers expect their spending to go up. Furthermore, 39% of millennials anticipate spending $750 or more on gifts alone; only 35% of baby boomers, 33% of Gen Xers, and 11% of Gen Zers expect to spend similarly.
Why are millennials planning to spend so freely? Many cite higher earnings as the reason why, coupled with having added more people to their shopping lists. But while it's nice to want to be generous during the holidays, millennials should take care to safeguard their finances, too.
There are better uses for your money
Many millennials are grappling with existing credit card debt, and plenty still have student loans hanging over their heads. And then there's the fact that 61% of millennials have less than $500 in savings for emergencies -- things like sudden home repairs, vehicle issues, or medical bills. Padding low-balance bank accounts should clearly trump holiday spending. If you're expecting to shell out a small fortune to celebrate the holidays this year, whether on gifts, travel, or décor, you may want to rethink that plan -- and think about where that money should go instead.
Even if you're able to buy every gift on your list this year without racking up unhealthy debt (namely, that of the credit card variety), it pays to consider scaling back and padding your emergency fund instead. This especially holds true if you have no money in near-term savings at all.
Furthermore, an estimated 66% of millennials admit that they're behind on retirement savings. If you're part of that statistic, you're better off spending less this year and putting some of that money into your 401(k) or IRA.
In fact, imagine you're planning to spend $750 on gifts like many of the millennials Discover surveyed. If you were to cut that number in half and stick the remaining $375 in a retirement plan whose investments generate an average annual 7% return (which is doable with a stock-focused strategy), over 30 years, you'd grow that single contribution into $2,855. And that's a pretty compelling reason to shop a bit more frugally this year.
Remember, when it comes to holiday gift-giving, it's the thought that counts, and there are plenty of low-cost ways to show the people in your life you care about them. Rather than spring for fancy gadgets or expensive clothing, offer to babysit for friends of yours with kids to give them a night out, or volunteer to fix your parents' quirky kitchen sink rather than buy them monogrammed dish towels they probably don't need. Even if you can afford to spend a lot this holiday season, there's no reason to do so when reserving that money for other purposes could help your finances on a long-term basis.