The Nightmare Before Christmas: Parents, Payday Loans and Holiday Spending

Inside Subprime: Nov 8, 2018

By Lindsay Frankel

Almost half of parents surveyed after the last holiday season said they made every attempt to cross off all the items on their kids’ wish lists, regardless of the cost. These parents were more likely to go into debt, according to a new report from T. Rowe Price. 48 percent took on debt to fulfill their kids’ wish lists, while 59 percent said they ended up spending outside of their budget. A stunning 10 percent of these parents reported having a current payday loan.

When parents use payday loans, they’re setting a poor example for their kids, since the decision to take out a payday loan comes with financial consequences that outweigh any child’s disappointment over missing presents. These small-dollar loans come with triple-digit interest rates that trap borrowers in debt. Even parents who avoided using payday loans took on long-term debt from the holidays; the survey showed that 22 percent of parents were still paying off credit card debt from holiday purchases more than six months after the season.

Stuart Ritter, a senior financial planner at T. Rowe Price, pointed out that financial security for a child’s future is far more important than having plenty of toys. “Parents who try to get everything on their kids’ wish lists need to keep in mind the financial consequences. They need to ensure that they aren’t taking on additional financial burden at the expense of other goals, such as saving for a vacation, home renovation, new car, their kids’ college, or their own retirement,” he said.

What’s more, parents who splurge on gifts over the holidays may be teaching their kids poor spending habits. Among those parents who spoil their kids with every gift on their list, 69 percent said they’ve had difficulty teaching their kids to save money. In addition, indulgent parents reported that their children were less likely to set aside savings from their allowance. Ritter noted, “Kids may be picking up the wrong lessons from their parents when they don’t have to prioritize the items on their holiday wish lists and make trade-offs.”

Paul Golden, a spokesman for the National Endowment for Financial Education, said parents should have an open discussion with their children about the family’s holiday budget. And Kit Yarrow, a professor emeritus of marking and psychology at Golden Gate University, said disappointment primes kids to be more financially responsible adults. Kids who grow up thinking they are entitled to have anything they want might become adults who use credit cards irresponsibly, for example.

Ritter added, “One of the key skills that people need to develop as part of their financial lives is prioritization and making trade-offs: differentiating what kinds of things are important, what kinds of things are less important and how do I manage my money in a way that reflects those values.”

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