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Got a holiday budget? Christmas offers good lessons for kids

The following column from Phoebe Venable , President and COO of CapWealth, appeared in The Tennessean on Nov. 17, 2017.

Believe it or not, Christmas is just around the corner! Now is the time to start thinking about how much your family should spend on Christmas gifts and festivities this year (and maybe try not to go overboard like last year). Every family has financial limitations when it comes to gifts, however it is easy to ignore these limitations during the holiday season.
Creating a Christmas spending budget is a proactive step, but how do you determine your budget? What does the average family spend? According to Deloitte’s 2017 holiday survey, Retail in Transition, the average expected spend for the 2017 holiday season is $1,266 per respondent. That’s an expected increase of 4 to 4.5 percent over last year, and that includes more than just gifts, as the bulk of shopper budgets go to non-gift items and experiences, according to Deloitte’s data.

If there are two adults in your family, that is $2,532 spent during the holiday season. But is that the right amount for your family?
One commonly used formula for establishing a Christmas budget is 1 percent of your after-tax income. If your family’s income is $100,000 a year and taxes are $20,000 (this will vary greatly but 20 percent is a good place to start), then your after-tax income is $80,000, and 1 percent of that is $800. That might sound like a lot of money to some and not nearly enough to others. If the average two-adult family is spending $2,532 this year on Christmas, does this mean the average family’s after-tax income is $253,200? Of course not. Clearly not everyone sticks to the 1 percent formula, but being conservative can be beneficial to you in the new year when the credit card bills come rolling in. But if 1 percent doesn’t work for your family, maybe 2 percent does. Find a moderate number that works.
The holidays are a wonderful time to teach children about using a budget. A portion of the family’s holiday budget can be allocated to each child so they can make their own shopping list and decide how they want to spend their holiday budget. Throughout their entire life, they will have to make choices about how to spend a limited amount of money, so this is a great learning opportunity for the kids and a great teaching opportunity for all parents.
By teaching children that everyone has a finite amount of money to spend on the holidays, they start to understand the value of budgeting. While gifts from Santa may magically appear, children need to understand that the other gifts they receive are purchased with hard-earned dollars. Include the children in your decision-making process for the family holiday budget, too, so they can start to see that there is a clear and thoughtful approach to spending.
All families have holiday traditions. At my house, we have a tradition of allocating a portion of our holiday budget for a “house” gift. We all get a vote and the opportunity to campaign for whatever we want the house gift to be. Over the years, this tradition has not only been a lot of fun for all of us, but it has also engaged our son in the decision-making process and helped him understand the budgeting process.
Another great idea is to allocate a portion of the family’s holiday budget to helping those less fortunate. Whether you adopt an angel from one of the Salvation Army’s Angel Trees or donate food to Second Harvest Food Bank, benevolence is about the importance of giving and what it means to both the giver and receiver. Charitable giving has been shown to help raise self-esteem, develop social skills, foster an introduction to the greater world and encourage kids to appreciate their own lifestyle. By giving children their own holiday budget, they will begin learning very valuable lessons that will benefit them throughout their lives and help them grow into money savvy adults.
Phoebe Venable, chartered financial analyst, is president and COO of CapWealth, LLC. Her column on women, families and building wealth appears every other week in The Tennessean.

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