The American economy is thoroughly dependent on the hundreds of billions of dollars that change hands in the runup to the winter holidays — and a good season is one where people spend to the max.
“When businesses are running, workers are working, and trade is taking place, the economy is functioning well,” said e-commerce entrepreneur Aviad Faruz, CEO of Faruzo. And boy, does it function well around Christmastime.
Whether it functions as well for the people doing all that spending is another story.
“Whether you need to travel long distances to see family, always throw an over-the-top party, or want to spoil your kids, the costs cause many to ring in the New Year with plenty of debt,” said Laura Adams, MBA, a personal finance expert with Finder.
So, where did this annual ritual of winter frenzy spending come from? Was it always this way? Do they do this in other places? What does it mean for the national economy and for the millions of people whose dollars drive it?
The Holidays Are Just American Consumer Culture in Overdrive
The American consumer economy began roaring in earnest after World War II, according to PBS, with the simultaneous rise of both the advertising and consumer credit industries. Today, consumer spending accounts for almost a full 70% of the national GDP.
And in the U.S., Christmastime is like the Olympics of consumer spending.
“Spending more during the holidays is not only specific to Americans,” said Anthony Martin, CEO of Choice Mutual and Forbes Finance Council member. “However, maxing out credit cards and deferring payments seem to be something we do more than others.”
“More than others” might be a bit of an understatement.
The United States has done more than $500 billion in holiday sales every single year without exception since 2006, according to the National Retail Federation (NRF). Spending has increased each year since at least 2002, except for 2008 and 2009 at the height of the Great Recession. But even then, holiday spending never dropped below a half-trillion bucks.
“For most people, there is no budget when it comes to holiday gifts,” said money management expert Guadalupe Sanchez of Budgeting in Blue. “Our mentality is to buy, buy, buy, regardless if we can afford it or not. The thought of paying it off comes after the fact. It’s unfortunate because that’s usually the spending mentality throughout the year, not just around the holidays. It just gets worse during the holidays.”
Advertisers Spend a Lot of Money To Get You To Spend a Lot of Money
America is also the undisputed king of advertising. According to Statista, the total expenditure on advertising in 2021 in North America was $297.5 billion.
“Several factors lead to Americans overspending on holiday shopping,” said Nikki Kirimi, MBA, CMA, CPA and founder of MoneyWorldBasics. “Advertising is one of them, and when combined with clever pricing tactics and other marketing techniques, Americans end up paying more for the things they buy.”
Advertising has been steering American spending habits since World War I, but the last few decades have witnessed the rise of actual holidays just for holiday spending.
“Holiday shopping has been a part of American culture ever since Black Friday rose to popularity in the late 1980s,” said Michelle Ebbin, a marketing and shopping expert and the founder of specialty clothing brand JettProof. “Holiday shopping has always been commercialized in the U.S. and has evolved even more through the conception of other special shopping events like Cyber Monday to promote online shopping and Thanksgiving Day sales to thin crowds flocking to actual stores on Black Friday.”
For Many People, Nostalgia and Tradition Are Worth Paying For
It’s not necessarily that people are gullible suckers for slick marketing. It’s that the holidays truly are a special time for a lot of people — and marketers know that they’re willing to pay a premium for that feeling.
“There’s a force more powerful than advertising or generosity that drives our holiday spending and willingness to run up a year’s worth of debt in the holidays,” said Sam Greenspan, head of content for Los Angeles-based e-commerce-focused tech company Demand.io. “That force is nostalgia. Holidays were a special time for us as kids. They are now a special time for us as adults. Presents, as well as other holiday expenditures like decorations, parties, food, and travel, are crucial elements of our memories. So as we aim to make the current holidays as special as those we remember, both for us and now for our children, we’re willing to spend money to make that happen. There’s no financial ceiling on what we’ll spend for those nostalgic feelings. And frankly, that’s some of the best money you’ll ever spend and the financial pain, for most, is probably worth it.”
A lot of it, of course, comes from the fact that people so often grow up to do what their parents did.
“From my perspective, your holiday spending habits will be much like how you grew up,” Sanchez said. “If you grew up receiving a lot of gifts from your parents and family members, you’re more likely to do the same as an adult — regardless if you can afford it or not.”
Spending Too Little Can Draw Judgment, but Spending Too Much Can Boost Your Status
Beyond advertising and nostalgia, there is intense social pressure to get in the holiday spirit — and to reach for your credit card while you do it.
“We may not be generous but we definitely don’t want to be called miserly,” said Susan Melony, home management blogger and founder of Product Diggers.
It is, after all, customary to give when you receive — and grand presents come with grand pressure to reciprocate.
“If you receive a big gift from someone, it doesn’t feel right to return the favor with something small,” said Trae Bodge, shopping expert and founder of Truetrae.com.
But it’s more than just the desire to give back. Springing for big-shot gifts can make you feel — and maybe even look — like a big shot yourself.
“Not only does it feel good to give, but there’s also a feeling of satisfaction in giving because we can give,” Bodge said. “The recipient will also enjoy what they received, and potentially develop an assumption that if you can give so generously, then you must be doing well. We want to keep that feeling — and that impression — going, so we continue to give even if it’s beyond our means. Being generous communicates success.”
The more money you spend on gifts, the more you buy in the form of status projection.
“Gifting on holidays is a token of love, however, it is also considered to be social proof of how you’re doing,” Martin said. “Giving expensive gifts or going on expensive trips is construed as a measurement of your finances and, like it or not, most do not like to be considered frugal in the holiday season.”
Today There’s Not Only Social Pressure — There’s Social Media Pressure
Black Friday revolutionized holiday shopping and advertising in the 1980s. A generation later, social media made it so that we carry the annual marketing blitz around with us everywhere we go on our phones.
“Advertising has always been an effective way to drive consumers to buy, but now there are so many ways for brands to reach us that it’s likely more effective than ever,” Bodge said.
It’s not just professional advertisers. With enviable lifestyles everywhere you look on Instagram, feelings of inadequacy can make people spend recklessly in an effort to try to keep up. This is especially true during the holidays.
“America has always been consumerist, it’s ingrained in the culture,” said Andrei Vasilescu, co-founder and CEO at DontPayFull. “But with social media gaining so much prominence, suddenly everyone is feeling more insecure about their own life, their own finances, and they feel the need to spend, to be flashy, and to appear to be doing better than they really are. A few decades ago, no one knew if you got your sister-in-law a crappy Christmas present. Now? Your whole community knows before you even finish the drive back home.”
Giving Can Offer a Much-Needed Respite
While the cynics blame advertising or assume that people overspend because it makes them feel big, it might just be that buying stuff for their favorite people makes them feel good.
“We love to give,” Bodge said — and the little pleasures are extra important in times like these. “During the pandemic, I heard a lot of stories about people giving more than usual because they are trying to make up for what others missed out on during lockdown — especially kids — or they feel bad that they can’t celebrate with people in person.”
Bodge is right. According to the NRF, 2020 holiday sales grew by 8.3% despite the pandemic as people holiday shopped their anxiety away.
Melony might have summed it up best with this: “What can I say? We are in love with the holiday spirit!”
More From GOBankingRates