Why consumers overspend during the holidays — and what to do about it

The holiday season is a time to give thanks, reflect on the past year, and spend time with family and friends. However, if you're not careful, this could also be a time when you overspend on holiday purchases.

About 83% of Americans plan to buy gifts for friends and family this holiday season, according to a NerdWallet poll.

Americans expect to spend an average of $1,014 on Christmas or other holiday gifts in 2024 — “significantly more” than the $923 reported last year, according to a Gallup poll published Oct. 25.

Nearly 10% of consumers expect to draw from their emergency fund to purchase gifts, and 9% will prioritize gifts over household bills like utilities and debt payments, according to the NerdWallet survey, published on October 8.

Nearly half of shoppers will finance this year's spending with loans or credit cards, according to a recent study by professional services firm EY. Meanwhile, 28% of people are still paying off credit card debt from the 2023 holiday season, NerdWallet found.

People have an innate urge to overspend, experts say. They are “hardwired” to be consumers, said Brad Klontz, a psychologist, certified financial planner and behavioral finance expert.

“Thinking about the long-term future has not served us well 99% of our time on Earth,” said Klontz, who is a member of CNBC's Board of Financial Advisors and CNBC's Global Financial Wellness Advisory Board. “Meeting our immediate needs is what it was about.”

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The short-term gratification of giving gifts to loved ones can obscure the long-term focus required to be good with money, Klontz said. This is where a lot of people fall short, he said.

“We can overspend because our long-term goals are more abstract and actually require us to do additional levels of cognitive processing to delay immediate gratification,” he said.

In addition, consumers may feel social pressure to spend more than they might want to because they don't want to appear “cheap,” said Andrea Wrosch, a consumer finance expert.

Many companies also promote deals — on Black Friday and Cyber ​​Monday, for example — that can create a “buying frenzy,” she said.

Experts said there are different ways for consumers to keep their holiday tabs within a reasonable range.

Here are some of their tips.

Develop a spending plan now about how much to set aside for the holiday season, Klontz said. It's not too late, even during Black Friday weekend. Consumers can use a gift list tracking app like Santa's Bag to track actual purchases and spending, Woroch said. Think beyond gifts, Warrush said. There are many other potential seasonal expenses, including groceries to feed out-of-town or holiday guests, holiday party clothes, family photos, greeting cards and postage, seasonal picnics, dinners with friends, fundraising events at your children's school and donation drives. You may need to cut some costs or spend less on gifts to accommodate these costs, she said.

Set your expectations for gifts with family and friends now, Woroch said. This might mean focusing on just the kids or creating a “Secret Santa” exchange where you're responsible for just one gift rather than several, she said. Instead of a material gift, maybe find an activity to do together instead. Or set a budget for gifts, and suggest a smaller amount this year, Warrush said. And take advantage of freebies to offset the costs of gifts, Worouch said. For example, it recommends signing up for free retail loyalty programs to earn money to use toward other gifts; and shop through cashback portals like CouponCabin.com or Rakuten for online purchases; And download a browser extension like Fetch to earn free rewards or gift cards. Take time to think about your long-term goals that “really matter to you,” Klontz said. This can help curb the urge to make short-term purchases.