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Growth & Jobs | Make a strong financial statement to ensure a debt-free Christmas

Published:Tuesday | December 12, 2017 | 12:00 AM
Rose Miller, grants manager, JN Foundation, speaks with JN employees during a financial empowerment session in this JN file photo.

With $5.40 of every $10 earned by households being used to finance debt, Jamaicans are being urged to spend wisely so as to avoid compounding their debt during the holiday season and position themselves to take advantage of improvements in the economy.

Grants manager at the JN Foundation, Rose Miller, who leads JN Foundation's financial literacy initiative, acknowledges that personal debt management is a problem in Jamaica due to poor financial behaviours and practices.

"Jamaicans know that they should save, but knowing that they should save has not always impacted their habits of thrift and spending practices," she said.

The Bank of Jamaica (BOJ) reported in its Financial Stability Report 2016 that household indebtedness had risen from $3.30 of every $10 earned in 2006 to $5.40 of every $10 earned in 2016 being used to finance debt.

"Globally, there is a similar trend taking place in terms of rising household debt. Several countries, particularly developed countries, have household debt that is higher than their gross domestic product (GDP), while in some countries, household debt is twice as high as GDP," said economist Dr Dana Morris Dixon earlier this year on the report's findings.

"We need comprehensive public education about managing our finances," she said, noting that although the debt level among the country's households was not the worst in the world, without proportionate increases in income, the problem will exacerbate.

Dr Morris Dixon, who leads business advisory services at the Jamaica National Group, the parent company of the JN Foundation, noted, at that time, that for the country to survive, Jamaicans need to reduce their appetite for borrowing to finance purchases that will not facilitate or offer them increased financial returns.

In light of the problem, the JN Foundation financial literacy expert has suggested that Jamaicans should consider the following tips for managing their money during this holiday season.

Stick to your budget

"Create a budget specifically for your Christmas spending and stick to it!" Miller advised.

"There are many things you may want or need; or even causes you would like to support; or parties you would like to attend. However, you need to prioritise and budget only for those items and activities which you actually need," she said.

And if you use a credit card as your main method of paying for goods and services, use it in accordance with your budget, she maintained.

"Remember your credit card is a loan, which carries a very high rate of interest; and interest will be accrued immediately after the due date. Therefore, spend only what you can afford; and, most of all, settle your balance before the due date; or, as soon as you can, to avoid paying interest," Miller recommended.

She noted, however, that using a credit card to pay for items can be advantageous to consumers, as it reduces the need to walk around with cash, which can be unsafe and supports impulsive spending. In addition, some credit cards offer 'cashback' points, once you clear your monthly bill on or before the due date.

"And, using your credit card instead of your debit card also means that you avoid paying point-of-sale fees on your purchase. Those fees may be low, but they can add up and affect your budget," she said.

Be creative with your gift ideas

Gifting does not have to be a spending spree, Miller said.

She suggested that instead of rushing to purchase gifts, people should consider creating their own gifts using their skills. Purchasing or creating gifts that can be shared by more than one member of the household, instead of providing individual gifts, is another idea to consider.

"It saves time and money, as you don't need to shop for every single person." And, "very often, the gifts you create aren't only less expensive, but they are more meaningful than items you buy in a store," she said.

Let everyone contribute to Christmas dinner

Not even Christmas dinners and parties need be costly, Miller noted.

"So you're hosting the annual Christmas dinner or party, but why do you have to do all the spending?" she questioned. "Reduce your costs by spreading it around. Ask family and friends to take bottles of whatever they like to drink or to purchase a few of the items you will need, such as desserts or ingredients for cooking."

Invest your bonus

Christmas is also a good time for investing, Miller urged, as many people earn extra during the holidays. Instead of blowing your bonus on gifts, a significant portion, if not all the extra cash, can be invested.

"Consider placing those funds in a fixed or long-term saving account, where they will earn higher interest; or in stocks, bonds or other instruments offered by regulated financial institutions that will yield great dividends," she counselled.

Persons may also use their bonus to finance some, if not all, of their debt, she recommended.

"Invest and spend wisely. You will have a merrier Christmas and a brighter new year for it," said Miller.