The highs and lows of gifting: Why people overspend during the holidays

Maralee chats with Eric Fontaine from TD about a new report showing Manitobans tightening their belts around the holidays.

The holidays are known as a time of giving. From gifts to parties to Christmas dinners, it’s all about being with loved ones, generosity, and giving back.

However, with giving also comes spending, and sometimes that means spending more than your budget allows.

According to Divya Ramachandran, an assistant professor of marketing at the University of Manitoba, the holiday season is often tough on people’s wallets.

She explained that’s because people tend to spend more when buying a gift for someone else than they would if they were buying that same type of item for themselves.

“Most consumers, me included, tend to overspend on gifts,” Ramachandran said.

“Because, subconsciously, we think about gifts as, ‘If I buy a good gift or if I buy something that’s very special to the recipient, it’s going to show them that I thought of them.’”

Ramachandran noted that people also tend to overspend because of the social expectation and pressure to give gifts, as well as the desire to share joy with others.

She added that people will also rationalize spending by telling themselves it’s a special time of year and by promising themselves they will spend less in the year to come.

“There is that sense [that] it’s a one-time expenditure and it’s the end of the year. I’m going to be better next year with regard to managing my budget,” she said.

“That kind of gives us this false sense of being okay with making expenditures, making these purchases that are over our budget.”

Spending and mental health

As for how this type of overspending impacts people’s mental health, Ramachandran said the act of purchasing a gift tends to give an emotional high, because it feels good to find something special and add cheer to somebody else’s holiday season.

However, once the holiday season ends and the bills start coming in, that sense of elation starts to fade.

“Depending on, obviously, what the amount is…and of course what your own financial situation is like, there could be a good amount of regret, a good amount of guilt that kind of seeps in during the post-purchase New Year clarity,” she said.

“I think that’s inevitable for a lot of consumers.”

How to avoid marketing ploys

For those committed to sticking to their budgets, Ramachandran recommends staying alert to any marketing promotions that may not be as great as they sound.

She said one thing to look out for is companies hiking up prices a few months before December and then dropping them back down and claiming it’s a discount. Another thing Ramachandran recommends is being aware of holiday bundles and whether you’re getting value for your money.

“It may appear like they are giving you a deal with a bundle, but you need to really look into the details and see whether you are getting a deal or whether it’s just smart marketing,” she said.

Ramachandran suggests that shoppers do some background research into pricing before making purchases, pay attention to the small details of the items they buy, and look out for any additional fees or charges.

She said to also ask yourself whether you can actually afford the gift or if you’re going to feel bad about the purchase down the line.

“We need to be a little bit more mindful of not just the current implication but the future implications of these purchases as well.”