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Growth & Jobs | Don’t take Christmas debt into the New Year

Published:Tuesday | December 17, 2019 | 12:00 AM
Rose Miller, head of the JN BeWi$e financial literacy programme.
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With personal debt becoming an escalating issue in many Jamaican households, Rose Miller, head of the JN BeWi$e financial literacy programme, is urging persons to be prudent with their spending this holiday season.

Miller, who is also grants manager at the JN Foundation, is advising shoppers to avoid a spending spree for Christmas, which could see them saddled with enormous debt in the New Year.

“It’s the festive season, and we’re all excited about spending time with our family and friends. We want to give gifts, eat lots of delicious food, redecorate the home, and attend many events to celebrate the holidays. The goal is to be able to do all this within a budget and without increasing our debt,” she said.

The Bank of Jamaica (BoJ) Financial Stability Report 2018 shows that $56.60 of every $100 earned by households in Jamaica is used to finance debt. This is the highest level of household debt mapped by the central bank to date, which highlights that Jamaicans are servicing three times more debt than a decade ago.

According to the BoJ, the underlying reason for the rise in debt relates to consumer loans growing three times as fast as income each year.

“While some of this debt might be good debt, such as mortgages or education loans, we can’t ignore the fact that high levels of debt can be crippling for most families, leaving them vulnerable to any changing economic circumstances,” Miller pointed out.

“What we want is for Jamaicans to spend wisely, borrow wisely, and to make sound decisions with the money they earn. This will allow persons to save and invest more of their income and to position themselves to take advantage of the improvements in the local economy.”

Miller warned that as Christmas approaches, many persons might be tempted to spend more than they can afford. In light of this, the JN Foundation financial literacy expert has suggested that Jamaicans 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 that are crucial,” 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, Miller maintained.

“Remember, your credit card is a loan, which, in some cases, carries a very high rate of interest, which is applied immediately after the due date if the bill is not settled. Therefore, spend only what you can afford, and, most of all, settle your balance in full before the due date 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. In addition, some credit cards offer great rewards.

“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,” Miller 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.

Invest your bonus

Christmas is also a good time for investing 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, mutual funds, 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.