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How to Set Financial Expectations Around the Holidays

Why It’s Important to Talk About Spending Over the Holidays

The holidays can be a time of great joy — or a time of great stress. For many families, one of the biggest stresses of the holidays has to do with finances.

In this year already marked by COVID-19-related financial stress, many people feel added pressure during the holidays to spend more money than they can afford. According to a survey conducted by LendingTree, six out of 10 Americans dread the holidays because of extra spending and three-quarters say they feel pressured to buy gifts for family members and friends.

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What’s more, a quarter of Americans expect to incur debt this holiday season, and about one in five are still paying off credit card bills from the holidays last year. Even worse, seven out of 10 parents with young children are worried about disappointing their kids.

Communicate Openly and Honestly

One of the keys to reducing financial stress over the holidays is talking freely with family members about holiday spending. Talking about money is hard, and it’s even harder over the holidays when emotions are running high, and the pressure to spend on material gifts is coming at us from all angles. But it’s important to set expectations with your family and friends to help avoid stress and misunderstandings when it comes to gift-giving and other holiday expenses.

Guidelines for Setting Expectations and Talking Money Over the Holidays

1. Start conversations early.

The sooner you start talking about holiday finances, the better. This helps avoid awkward scenarios, like one spouse going out and spending more money on gifts for the family than the other spouse would have liked.

A good way to avoid these kinds of disagreements is to work together on a holiday budget. This will enable you to get everyone’s input on holiday spending and set a spending limit for the entire family. Be sure to include not just gifts but all holiday expenses in your budget, such as holiday decorations, travel, parties, food and entertainment.

Some good questions to talk to your family about when putting together a holiday budget are:

  • What is your gift budget for your spouse? Your kids?
  • Are you planning to buy gifts for teachers, coaches, or friends? How much are you willing to spend?
  • Are you hosting any get-togethers over the holidays? How much do you want to spend on food and drink? Do you want to have a potluck-style gathering?
  • What is your budget for any holiday travel?

Click here for more tips to help you create a holiday spending budget.

2. Involve everyone in the family.

It’s critical that all family members be included in these conversations. If some members are left out, they could end up spending more or less money on gifts and other expenses than others in the family, which can lead to hurt feelings.

It’s also important to make sure everyone feels comfortable sharing their feelings around money. Not everyone in the family is going to have the same outlook toward holiday spending — some people may prefer spending freely on gifts and parties while others are more conservative. The “free-spenders” shouldn’t make the frugal family members feel guilty or intimidated about their feelings.

3. Set realistic expectations for children.

Let’s face it: many kids have unrealistic expectations when it comes to holiday gifts. Last year, a ten-year old’s Christmas list went viral that included (complete with misspellings!) items like Gucci Shoes, a Chanel purse, $4,000, and a new iPhone 11. While this is obviously an extreme example, it’s a good idea to set realistic expectations with your kids when it comes to your budget for the holidays. Teaching good money habits can start with conversations like these, but it’ll also hopefully help you avoid disappointed children if your budget doesn’t stretch to Gucci shoes and a new iPhone!

4. Focus on non-material things during the holidays.

Sure, the holidays are about giving and receiving gifts. But they’re also about taking some time to relax with family and friends.

Regardless of how much money your family decides to spend during the holidays, you can relieve a lot of the financial holiday stress by de-emphasizing material gifts in favor of these and other non-material aspects of the holidays. Not only will this reduce financial stress, but it could also lead to a more meaningful holiday season for your entire family. For example, charitable giving is often a great way to give back and de-emphasize “things” over the holidays, whether it be giving money, giving time, or both. This year, my family is donating items to local homeless shelters instead of doing a big gift exchange, which not only takes the pressure off to spend a lot of money on extended family members, but is also a great opportunity for us to give back to the community.

Learn More: Qualified Charitable Deductions

Our Take

It’s never too late to initiate family conversations about holiday finances and spending. Doing so can help reduce stress and may lead to a happier holiday for everyone in your family.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Hilary is a Senior Marketing Manager at Personal Capital, and the Editor in Chief at Daily Capital.

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