Financial Planning, Retirement, Economy

Some Americans Would Rather Save This Holiday Season

12/5/19 12:00 PM

Confidence gauges remain elevated, helped by a tight labor market and a welcome uptick in real wage growth. This environment is supportive of continued consumer spending, the largest component of the U.S. economy (gross domestic product), and Americans recently surveyed by Gallup said that they plan to spend an average of $846 on gifts this holiday season. That is a welcome increase from 2018, and a relatively high proportion of respondents also anticipate that their spending will be “more than usual” in 2019.

Strong year-ago comparisons are to be expected given how weak spending was last December, but there are still a few Americans who appear less eager to spend during this holiday shopping season. For example, a new Bankrate poll found that 53 percent of U.S. consumers plan to limit their gift-giving this year to immediate family in order to save money, and another 53 percent will also try to take advantage of coupons and store sales. Sixteen percent of respondents even said that they may skip gift-giving altogether, and nearly two-thirds admitted that they have felt pressured to overspend during the holidays. Many of these responses are actually improvements when compared to the 2018 survey and would therefore agree with the increased spending this holiday season signaled in the Gallup poll. Regardless, a large number of Americans clearly remain reluctant to splurge this year.

Such individuals likely have a variety of motivations for limiting their holiday spending, but the general willingness to do so encouragingly suggests that they recognize the importance of having a strong financial standing. In fact, 56 percent of consumers in a separate Bankrate survey who are planning on purchasing holiday gifts this year said they will only use their checking accounts (cash) in order to avoid credit cards and help them continue to pay down debt. Fifty-six percent of respondents in an earlier Edward Jones poll 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 financially secure retirement, and the sooner one can start saving and investing the better. This is evidenced by an updated J.P. Morgan analysis which estimated that a hypothetical 25-year-old with an income of $50,000 will need to set aside 7 percent of his or her annual pay every year in order to be prepared for retirement. The required savings rate jumps to 16 percent if the person waits until age 40 to start setting money aside, and 34 percent if procrastination continues until age 50. For higher income individuals even greater percentages of their income will need to be saved if they intend to maintain their pre-retirement standard of living in old age. A more personalized assessment of what you should be currently setting aside for retirement is available by consulting with a financial advisor.



Sources: Gallup, Bankrate, Edward Jones, J.P. Morgan

Post author: Charles Couch