Parents often find themselves splurging a bit during the holiday season for their children, and this trend continues strongly. Among those leading the charge this year are millennials, many of whom are now parents themselves with school-aged kids. According to TransUnion’s recent quarterly report, about 63% of millennials plan to match or even increase their holiday spending compared to last year, topping any other generation in their spending intentions.
Interestingly, millennials are reporting a rise in their income over the past few months and are feeling optimistic about earning even more as the year progresses. TransUnion conducted a survey of 3,000 adults this October, which formed the basis of these insights. Charlie Wise, TransUnion’s senior VP and the head of global research, expressed enthusiasm, stating, “There’s a lot of optimism going into this holiday season.”
While some folks worry about rising costs and an uptick in the unemployment rate, Wise pointed out that for millennials, recent wage increases have outpaced inflation. “When people have stable jobs, that confidence naturally leads to more spending,” he explained.
Moreover, it’s clear from recent studies that millennials are poised to make the biggest impact this holiday season in terms of spending. The National Retail Federation forecasts holiday spending will set new records, potentially reaching as high as $989 billion between November and December. Even though credit card debt has soared past $1.17 trillion, shoppers still plan to spend an average of $1,778 each, marking an 8% rise from last year according to Deloitte’s survey.
Still, financial caution might be wise. A NerdWallet survey revealed that 28% of shoppers hadn’t yet paid off last year’s holiday purchases. This situation raises the concern of entering the holiday season with existing debt.
As the holiday shopping frenzy begins, many are opting for various payment methods. NerdWallet reports that while 74% of individuals use credit cards for gift purchases, others are banking on savings or utilizing the increasingly popular “buy now, pay later” services. The latter option, highlighted in recent Adobe data, is forecasted to hit a peak this Cyber Monday, with estimated spending reaching nearly $1 billion in just one day.
However, experts urge caution with buy now, pay later services due to potential complications from juggling multiple payment schedules. These can be trickier to manage compared to credit cards, despite their own high-interest rates.
Sometimes, paying in installments makes sense, especially when there’s no interest attached. Marshall Lux from the Mossavar-Rahmani Center at Harvard Kennedy School noted, “If used smartly, it can be beneficial.” Yet he also warned, “Spreading payments over time can lead to high interest and a debt cycle.”
The more these installment accounts are utilized simultaneously, the greater the risk of overspending and financial mismanagement, recent research suggests. Late fees, deferred interest, or penalties can also arise if a payment is missed, with some interest rates climbing as high as 30%, rivaling even high-interest credit cards.
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