Paying for Christmas 2009

by Robin Fiedler

A half century ago, consumers willingly opened up back accounts that forced them to save for Christmas in advance; they were called Christmas Clubs. Christmas Clubs vanished as credit-card use grew, and shoppers went from spending their own money to spending other people's money to pay for Christmas gifts. After 2008, we're going back. Christmas 2009 is about paying with cash. christmas-bills

Christmas Club accounts required consumers to make weekly payments or suffer penalties. Yes, Americans voluntarily subjected themselves to indentured savings to pay for Christmas, and it was a popular practice. A November 1958 Time article reported, "Christmas Clubs will pay record $1.3 billion, 3% more than 1957, to 13 million members through 7,900 banks and savings and loan associations. Top saving states: New York $281.8 million, Pennsylvania $184 million, New Jersey $144.8 million." Wow, did we really save that much money in advance?

James Surowiecki in Forbes reflects on the popularity of Christmas Clubs. "Christmas Club accounts [were] a staple of American banking in the 1970s. The Christmas Club account was, on the surface, a bizarre idea: You gave the bank money every month. The bank paid you no interest, and it would not let you take the money out until Dec. 1. This was not much of a bargain. And yet Americans happily put their money into Christmas Club accounts."

Today the closest concept we have to saving in advance Christmas Clubs is the layaway plan, which became popular again this holiday season. Many of the big retailers offered layaway plans in which consumers make a down payment on gift purchases and then pay weekly payments until paid in full. Then the gifts can go home. Some retailers even offered online layaway plans for the first time in 2009.

Christmas 2009 is marking consumers' efforts to pay for gifts with cash. Did they do it voluntarily? The credit crunch may have helped shoppers decide cash is the way to pay. A survey by the National Retail Federation (NRF) in the first week of Dec. 2009 reveals almost 40% of consumers used debit and check cards more often to purchase gifts. "Fewer people have used credit cards as their preferred payment method this year (30.9% vs. 33.8% in 2008), more than one-quarter (26.0%) have used cash, and a mere 3.8 percent have relied on checks."

"As expected, shoppers have shown tremendous restraint in buying gifts with the money they already have, not the money they hope to have," said Phil Rist, Executive Vice President, Strategic Initiatives, BIGresearch. Rist predicts that less debt after Christmas will boost consumer confidence. But then there's all the 6-12 month interest-free credit purchases consumers made, another popular way to pay for Christmas. Just watch out for those deadlines.

As more of us pay for Christmas with cash, we will avoid the Christmas credit card hangover in January. And that's one less New Year's resolution on my list.

Resources

"Procrastination Abounds as NRF Survey Finds Most Have Completed Less than Half of Shopping." National Retail Federation. 16 Dec. 2009.

Surowiecki, James. "Bitter Money and Christmas Clubs." Forbes. 14 Feb. 2006.

"Time Clock, Nov. 10, 1958." Time in Partnership with CNN. 10 Nov. 1958.