Americans tend to overspend during the holiday shopping season, and forecasts say this year will be no different. Millennials, many of whom are parents of school-age children, are leading the way, according to a new study. However, relying on credit cards or Buy Now, Pay Later plans to purchase gifts can end up costing you a lot if the balance isn’t paid off right away.
Parents tend to splurge on their kids during the holidays.
This year, 63% of millennials (many of whom have school-age children) said they plan to spend the same amount or more on holiday shopping than last year, according to the magazine. This is the highest percentage among all generations. Report by TransUnion.
Millennials are also more likely to say their income has increased in the past few months and they expect their income potential to increase again in the year ahead. TransUnion surveyed 3,000 adults in October.
“I think there’s a lot of optimism heading into the holiday season,” said Charlie Wise, TransUnion’s senior vice president and head of global research and consulting.
For many in this group, recent wage increases have outpaced price increases, and although broader unemployment has increased, “employment conditions remain stable,” Wise said. “When people have jobs, that confidence translates into spending.”
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“It’s clear that Millennials will play the biggest role and spend the most on this year’s holiday shopping season,” Wise said.
Holiday spending from Nov. 1 to Dec. 31 is expected to increase to a record $979.5 billion to $989 billion, according to the National Retail Federation.
Despite credit card debt exceeding $1.17 trillion, holiday shoppers expect to spend an average of $1,778, an 8% increase from a year ago, according to Deloitte’s Holiday Retail Study. are.
Meanwhile, 28% of holiday shoppers surveyed in September said they still hadn’t repaid a gift they bought for a loved one last year, according to NerdWallet’s Holiday Spending Report, which surveyed more than 1,700 adults. did.
Holiday spending can lead to holiday debt
According to NerdWallet, most shoppers (74%) use credit cards to purchase holiday gifts, but 28% tap into savings and 16% rely on buy now, pay later services. It turned out. Survey respondents can choose multiple payment methods.
Buy now, pay later is one of the fastest growing categories in consumer finance, and is expected to become even more popular in the coming weeks, according to the latest data from Adobe. Adobe predicts that “buy now, pay later” spending will peak on Cyber Monday, hitting a new single-day record of $993 million.
But some experts warn that managing multiple “buy now, pay later” loans with different payment dates can increase the potential for consumers to become overwhelmed. Even though it’s empty, the interest rate is even higher than that of a credit card, which is easy to explain.
In some cases, installment options can make economic sense, especially when the interest rate is 0.00, says Marshall Lux, a senior fellow at Harvard Kennedy School’s Mossava Rahmani Center for Business and Government. That’s the case with %.
“It’s great when used properly,” Lux said.
“However, many people are looking to spread their purchases over a longer period of time, which can lead to a cycle of high interest rates and debt,” he said.
Other research shows that the more Buy Now, Pay Later accounts consumers open at one time, the more likely they are to overspend, miss or miss payments, and have a bad credit history.
If a consumer misses a payment, some lenders may impose late fees, late interest, or other penalties. In some cases, that interest rate can be as high as 30%, which is comparable to the maximum amount on a credit card.
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