Credit Check: Smarter holiday spending

At this time of year, it’s not just advisors who are spreading the message of prudent festive spending. MasterCard Canada is also urging Canadians to practice caution and plan before heading to the malls this holiday season — especially when they’re carrying plastic.

According to the credit card company’s vice-president of public affairs, Jennifer Reed, the most important thing consumers can do before their shopping exodus is to set a budget and stick with it — and in particular, to understand there’s a time and place for using credit wisely.

“There are a lot of benefits that come to paying with a credit card, but before you set out to go shopping, it’s really important that you know what your budget is, what you’re buying and how you’re going to pay for it — and what’s within your threshold,” says Reed.

MasterCard Canada has teamed up with Credit Counselling Canada in developing online educational tool offerings. Credit Counselling Canada spokesperson, Laurie Campbell, who is also the program manager for Credit Counselling Services of Toronto doesn’t think November is too early to start holiday shopping. “So you can avoid the craze.”

She says the later people start, the more likely they are to spend wildly because of last-minute pressure. “The stores are busier, you’re rushed, you don’t have time to stand in line, so you’re less patient and you’re going to pick up something that you don’t really comparison shop for,” she explains. “All those things are obviously going to add up to more cost. Emotions tend to run wild, and when [that happens] people tend to spend more money.”

MasterCard Canada and Credit Counselling Canada’s “Financial Reality Check” allow families to participate in an interactive, online quiz to see where they fit in the money-management arena.

For example, say the participant clicks on enough options to indicate they aren’t adequate savers and budget planners, and are more apt to frivolity with their finances, their quiz rating might come up with the following reading: “High-risk, short-term style. Your family’s finances are floundering. MasterCard Family Finance Reality Check: You better take a closer look at your finances before you end up breaking the bank.”

Get them while they’re young!

MasterCard’s studies indicate the average age parents started talking to their children about money is 10. Campbell thinks that’s far too late and suggests bringing up money talk closer to the cradle. “Start them at the age of four or five. They may not be able to grasp it earlier than that, but certainly at four they can grasp that this dollar will buy this.”

“I’m a firm believer that children will learn and understand if you start engraining in them, from a very young age, that if you want something you have to work towards it — it becomes a goal; it’s not something they have immediately, it might be something they save up towards, and that money is not an endless supply.

Reed adds it’s like being a safe driver. “Once you’ve got those habits, you’re going to carry them through the rest of your life.”

Sandra McLeod, director of succession and estate planning for Grant Thornton LLP in Toronto, says it’s paramount parents teach children about spending early on and simultaneously put them on a budget. Particularly around the holidays, you can start the discussion very basically, she notes. “Tell them they have to choose between their bike and their new skates, or whatever it is. They can’t have it all because it all costs money.”

But what to do when the child tells the parent to put it on their credit card? McLeod suggests teaching them how interest works and the importance of paying those cards when the bill arrives. Further explain that if the bill isn’t paid the parent will be penalized in the form of additional payments.

Portfolio manager Shelly Appleton-Benko of Odlum Brown in Vancouver started the educational talks with her child last summer when he expressed his wish for a basketball hoop. She told him in no uncertain terms he’d have to earn it first. “You don’t just get things because you want them,” she explained.

Instead, her family held a garage sale where all proceeds went into a jar representing the basketball hoop. “We could probably just buy it, it’s about $200, but it’s about choices. He had a lemonade stand. He made $11 and it went towards the basketball hoop. He doesn’t have it yet. He’ll get it soon, probably around Christmas!”

Filed by Heidi Staseson, Advisor’s Edge, heidi.staseson@advisor.rogers.com

(11/25/05)

Heidi Staseson