From Secret Santa to Government Approved Shopping Spree: A Method Worth Questioning
As every sugar rush ends in a crash, conventional economics predicts a post-Christmas hangover in January. Yet, the data tells a different story.
Christmas spending defies all rationality. Yet it is also predictable as Canadians prepare to spend an average of $1,478 this holiday season according to Deloitte’s 2024 holiday retail outlook (Deloitte Canada). Tradition, coupled with joy, or rather the obligation of gift giving, challenges the financial discipline of even the most frugal consumer. The fear of missing out (FOMO) on limited-time deals works to override any pre-existing Christmas budget (PricewaterhouseCoopers).
As every sugar rush ends in a crash, conventional economics predicts a post-Christmas hangover in January. Yet, the data tells a different story. Although consumers are expected to cut back on nonessential spending, such as dining out, due to financial restraints from December, January retail sales hardly slow down (PricewaterhouseCoopers). January 2024 retail sales in the U.S. showed only a 0.8% decline from December, largely attributed to the discounted prices influencing sales figures, although the volume of sold goods and services remained nearly the same (U.S. Census Bureau).
The methods are carefully designed. Retailers offer large Boxing Day discounts of 50% to 70% and January clearance deals in order to increase consumers’ purchasing power and sustain their Christmas spending habits after the tinsel has been tucked away. While self-gifting is justified by gift cards and returns, Statistics Canada reported that credit card debt increased by 1.1% between January 2024 and December 2023, which suggests expenditure is much higher (Statistics Canada).
Government policy also plays a part in shaping consumer behavior. Canada’s recent announcement of a tax-free season from mid-December to mid-February is a textbook example of how fiscal policies influence spending patterns. In an effort to elevate the burden of the rising cost of living, sales taxes will be waived from essential goods such as groceries, printed books, children’s clothing, toys, and more. Furthermore, a $250 rebate will be issued to working Canadians earning less than $150,000 in 2023. Ottawa’s timing is no coincidence. These measures carefully target the post-Christmas slump to artificially stimulate spending during a period when consumers’ wallets are stretched thin, and the economy is slowing down. While a $1.6 billion tax relief is expected to help lessen financial restraint imposed by the holiday season and repayment of debts, these measures may end up funding discretionary purchases rather than savings accounts (Department of Finance Canada).
It is interesting to see the cycle continue as consumers look for advice on how to manage their finances as well as the spender’s remorse—a term that describes the feeling of regret after a purchase—as explained by behavioral economists. The demand for subscription-based services such as YNAB (You Need A Budget) becomes an all-time high during the holiday season. YNAB has a monthly plan of USD 14.99 and a yearly plan of USD 109, making a subscription fee yet another factor contributing to the financial pressure that consumers’ budgets are already under (YNAB). Much like gym memberships after New Year’s resolutions, consumers will be paying monthly subscription fees for the services they most certainly will not use once the spender’s remorse fades away.
Despite being partakers, these subscription-based services are not the primary beneficiaries. Retailers boost their revenues while clearing inventories. Governments celebrate a GDP increase while preventing the impending post-Christmas recession. Meanwhile, consumers emerge from the season of giving with depleted savings.
Ending the year with debt to enter a recession-free new year is a trade-off worth questioning. This cyclical pattern presents a classic economic paradox as it meets short-term goals while possibly building tomorrow’s crisis. The real question facing policymakers is not how to stimulate consumer spending, but how to build a model that does not rely on consumer spending as the primary source of growth.
References
Deloitte Canada. “2024 Holiday Retail Outlook.” Deloitte Canada, 15 Oct. 2024, www2.deloitte.com/ca/en/pages/strategy/articles/holiday-retail-outlook.html.
PricewaterhouseCoopers. “Holiday Outlook 2024.” PwC, 1 Oct. 2024, www.pwc.com/us/en/industries/consumer-markets/library/holiday-outlook-trends.html.
U.S. Census Bureau. “Advance Monthly Sales For Retail and Food Services, January 2024.” United States Census Bureau, 15 Feb. 2024, www2.census.gov/retail/releases/historical/marts/adv2206.pdf.
Department of Finance Canada. “More Money in Your Pocket: A Tax Break for All Canadians.” Canada.Ca, Government of Canada, 21 Nov. 2024, www.canada.ca/en/department-finance/news/2024/11/more-money-in-your-pocket-a-tax-break-for-all-canadians.html.
YNAB. “Pricing: Ynab.” YNAB, www.ynab.com/pricing. Accessed 25 Nov. 2024.
Statistics Canada. “Monthly Credit Aggregates, January 2024.” Statistics Canada, 21 Mar. 2024, www150.statcan.gc.ca/n1/daily-quotidien/240321/dq240321d-eng.htm.