Holiday shopping can be a budget buster for anyone, but did you know that paying for items differently could actually curtail your spending? Research suggests that the ways in which we pay for things – cash, credit, store card, Venmo – influences how much we spend. The difference hinges on a concept known as “pain of payment,” and cash comes with the biggest hit. According to marketing professor Priya Raghubir, “There’s just something painful about taking money out of your wallet” that we just don’t experience when paying with a card or using a digital payment system.
As you prepare for the holiday shopping season, tune into your payment habits and start spending smarter. With a few simple changes, you may find it’s easier to stick to your budget and still buy everything you wanted.
Mind Your Store Cards
If cash encourages people to spend less because it triggers the greatest degree of distress, store credit cards may be some of the worst culprits for overspending. The reason? Targeted rewards. Store credit cards offer rewards based on spending and may encourage buyers to overspend to reach a new reward level. The Apple Store card, for example, offers $25 for every 2,500 card points. In dollars, though, that means you’d have to spend $834 at the Apple store to get $25 back – not a good deal.
Most store cards offer similarly dismal rewards, so your best bet is to leave them at home, or just not apply in the first place. It’s one thing to have a store card for places you frequent – all-purpose stores like Target have strong programs, there’s no reason to apply for a card at shops you only visit during the holidays, and it could hurt your credit.
Consider Using Layaway
Some years ago, layaway was a shopping mainstay, a way to pay for items you couldn’t afford all at once without using a credit card. With the rise in credit’s popularity, though, layaway seems to have gone the way of the chimpanzee – it’s still around, but you aren’t likely to see it. Still, it’s worth seeking out layaway programs where you can find them. Stores like Walmart, Burlington Coat Factory, and TJMaxx all offer layaway programs.
One of the primary benefits of using layaway to make larger purchases is that, unlike using a credit card, you don’t get charged interest on your purchase. And though most stores have a small service fee for using the program, since you’re going to pay for it over a set time period (usually 8-12 weeks), that fee ends up being much less than the almost infinite interest most people end up paying on their credit cards.
Another advantage of shopping with layaway is that it allows you to “lock in” a lower price on an item that might be costlier closer to the holidays. This is great for shoppers who want to avoid the Black Friday rush and beyond; you get the deals with none of the hassle.
Start Early To Save
Whether you’re paying with cash or card, using layaway or taking your items home right away, the best way to save money on holiday gifts is to start shopping early. This year, shoppers seem to be delaying purchases – only 25% estimate they’ll be done shopping by Black Friday weekend, compared to 60% last year. That means early shoppers have a real advantage: no lines and plenty of goods on the shelves. Shopping early also gives you more time to compare prices, find coupons, and get the best deal, ensuring that you stick to your budget.
Holiday shopping can be stressful, as you contend with crowds and try to find gifts without breaking the bank, but it’s possible to gift shop without the pressure. Have a plan, start early, and carry cash whenever possible and you’ll naturally rein in your spending.