Here’s some guidelines for keeping Christmas spending under wraps this year.

• Freeze your credit card in big block of ice! You won’t be using it.
• Determine your total Christmas budget – it’s whatever CASH you have available $50 or $5000 it doesn’t matter, do not use credit.
• Do some gift negotiating with your family -don’t buy gifts for everyone, do a secret Santa or similar.  Set a budget, e.g. $20 limit.
• Wish List – Have everyone do up a wish list that way you’ll get something you actually want AND you’re gift will be something THEY really want.
• Job Lists – I don’t really need another book (I go to the library) but I’d love someone to clean my gutters or help me paint that room.  Maybe you can exchange labour this Christmas?
• Give savings bonds- hopefully they use it to build a solid financial future

Remember Christmas isn’t about racking up the credit card to make other people happy.  It’s about taking the opportunity of that the down time presents to have a great time with your family!  Imagine how guilty you’d feel if you knew someone had maxed out their credit card to buy you a present.  Don’t do it!

Credit card debt has increased dramatically in Australia since 1985 (start of RBA records).  The nation’s current credit card balance, as of June2009, stands at around $44 Billion or $1869.00 per person. In 1985 the credit card balance was only $2.5 Billion or $166.66 per person; accounting for inflation and population increase that’s 533.3% more than in 1985.  The real scale of consumer indebtedness is difficult to ascertain as every year consumers consolidate their debt into personal loans, reducing their credit card balances, talking to industry insiders this accounts for approximately 50% of personal loans.

At the same time Australia’s savings rate has declined. It has declined steadily from 1985 at points reaching negative levels when personal spending exceeded income. It would be reasonable to assume that savings would track income but unfortunately this has not happened.  In fact 25 years ago when real income was 31.6% less than it is now savings rates were 231% higher than 2009 levels.  All this is in spite of the fact that increased substantially.  We earn, adjusted for inflation and population growth, 43.8% more than people did in 1985.

Some economists would argue that debt itself isn’t a problem, referring to the Money Multiplier effect. The best way to describe this is to use and example; let us use a consumer buying a car financed through a personal loan.  The consumer buys the vehicle, the sales person gets a commission, the bank employee who provided the loan get’s paid, the sales person orders another car, the manufacture employs staff and also buys metal from mining companies who pay royalties and employ staff.  All those who earn more along the chain also spend so the cycle continues.  As long as incomes keep pace with rising debt there isn’t any problem.

Other economists do take a negative stance against consumer debt. Funding consumption through debt leads to problems.  The concept consuming through debt and yet maintaining your current standing of living is predicated on incomes continuing to rise, which is not a given.  Australia has experienced one of the biggest economic booms in history, with real incomes today (2009) being 47% higher than they were in 1985. At some point the economic boom will cease.  The burden of the debt will hamper consumption putting a “break” on the economy and driving down Australians quality of life.

Investment in infrastructure (factories, ports, public transport) and accumulation of capital (for domestic and overseas investment) are long term drivers of economic growth.  Using debt to fund consumption, when the majority of goods consumed are imported exponentially reduces Australia’s capacity to save and fund infrastructure and the accumulation of capital.

At some point the winter will come and we will regret the long summer of singing and spending.  Real incomes will drop as we have not invested anything to sustain us into the future.  While we may hope that the ants will share and we won’t be chastised however realpolitik is seldom so forgiving.