Financial Planning, Retirement, Economy

Americans Will Focus On Finances This Holiday Season

12/21/18 8:00 AM

iStock-626627280.jpgConsumer confidence remains elevated, helped by a tight labor market and a slight uptick in wage growth. However, there are a few signs that Americans are less eager to spend during this year’s holiday shopping season. For example, last week we learned that retail sales in November rose at an annual rate of 4.2 percent, down from the previous month and well below the 6.2 percent gain seen in November 2017. Core measures of retail sales that strip out the volatile food and energy components also softened on a year-over-year basis in November.

It is possible that more consumers this year simply opted to avoid the crowded stores on Black Friday and instead put off their holiday shopping until December, but recent surveys still raise doubts. A Bankrate poll, for instance, found that nearly two-thirds of Americans plan to limit their gift-giving this year to immediate family in order to save money, and 57 percent will also try to take advantage of coupons and store sales. Thirteen percent of respondents even said that they may skip gift-giving altogether, and 45 percent admitted that they have felt pressured to overspend during the holidays. Similarly, an Edward Jones survey found that many Americans are being more thoughtful with their budgets this year, including 42 percent of respondents who said that they have adjusted their holiday shopping plans due to external factors such as rising interest rates, tariffs, and stock market volatility.

Although people may have a variety of motivations for limiting their holiday spending, the willingness to do so encouragingly suggests that these individuals recognize the importance of having a strong financial standing. In fact, 68 percent of surveyed consumers who are planning on purchasing holiday gifts this year said they will only use their checking accounts in order to avoid credit cards and help them continue to pay down debt. Fifty-six percent of respondents also said that they would rather dedicate an hour to reviewing their retirement plan with a financial professional than spend that time waiting in a checkout line this holiday season. Further, 48 percent of surveyed Americans said that they would prefer to receive a $1,000 investment portfolio of stocks and bonds as a holiday gift than $1,000 worth of material items such as new clothes, video games, and entertainment systems.

Such respondents likely understand just how powerful long-term participation in the market can be when trying to ensure a comfortable and finally secure retirement. Moreover, an earlier J.P. Morgan study estimated that a hypothetical 25-year-old with an income of $50,000 will need to set aside 9 percent of his or her annual pay every year in order to be financially prepared for retirement. The required savings rate jumps to 20 percent if the person waits until age 40 to start setting money aside, and 41 percent if procrastination continues until age 50. For higher income individuals even greater percentages of their income will need to be saved each year if they intend to maintain a retirement lifestyle equivalent to when they were working. A more personalized assessment of what you should be currently setting aside for retirement is available by consulting with a financial advisor.



Sources: U.S. Census Bureau, Bankrate, Edward Jones, J.P. Morgan

Post author: Charles Couch