Christmas is coming and many people cannot wait to get it over with and move on. As we are all aware, there has been considerable global financial turmoil this year. It is that time of year again where you can get yourself into trouble by getting carried away by the Christmas spirit.
In particular, retailers are enticing purchasers with free credit deals such as 30 months interest-free after 30 months of no payments. Many stores are discounting just to make sales.
It has been obvious over the past one or two years that many people have understood that debt reduction is the best investment to make. As a result, our consumer-driven society has slowed and almost stalled. Hence the incentives that are being offered.
There are now many schemes available to help ease the Christmas pain by saving over the year. Grocery stores offer a Christmas club, the credit unions have special accounts and so do many of the banks. The first record of a Christmas club (according to Wikipedia) was in 1909, in Pennsylvania, United States. They were very popular during the Depression and many firms offered incentives to join.
In New Zealand, the grocery organisations used to issue vouchers at a 5% discount but now they have electronic cards. You receive a 5% interest payment on your account in early December and you can keep using your card indefinitely for several years.
There are rules regarding withdrawal in that usually you can only make withdrawals or purchases in December.
The credit unions this year accumulated $14.2 million which will be a good boost to the Christmas season. I was unable to find out the amount the major grocery chains accumulated but a best guess would suggest that it would average about $200 per customer. Multiply that by the number of customers and you can see it makes good business sense to lock their customers in to spending in their stores.
The worst thing you can do for Christmas is use your credit card extensively. Interest rates on credit cards are still around 20%. Personal unsecured loans have interest rates around 16%. You should not borrow to spend. What you do this Christmas could be still owed next Christmas.
It has been a difficult year but it has been possible to manage it, with small benefits. If you did not lock in your mortgage long-term, then you are now reaping the benefit of steady floating interest rates.
Fuel dockets help with 4c and sometimes 25c a litre off fuel. The cynics usually comment that the fuel dockets are built into higher grocery prices. Unfortunately, the price of petrol has been quite steady around $2.05 for most of the year.
At a recent social function several people at the venue kept disappearing outside to have a cigarette. A reduction or giving up the habit altogether could be beneficial. A packet of cigarettes costs about $12.50. One packet a day is about $4500 a year. Over ten years, the cost is $45,000 and so on.
The official cash rate in New Zealand remains unchanged at 2.5%, Australia cut its rate to 4.25% and in the UK remains at 0.5%. There has been no dramatic action in the markets as these were already built in with the anticipation of them coming. The European situation has not really changed over the past 12 months. The debts of Greece, Italy, Spain and Portugal are not being repaid.
Ireland has got it, though, and is reducing its debts. The people of Greece have recently grudgingly accepted reforms and the new Italian Prime Minister has succeeded in introducing budget cuts. The US debt levels are still high and have not been resolved, despite the large amount of money pumped into the system just by paper creation.
Change for the better will happen gradually through 2012. The best you can do is hold on tight and, if possible, increase your savings. If you have not already done so, join the other 1.7 million in KiwiSaver.
• Peter Smith is an authorised financial adviser, a certified financial planner and is the the principal of Kepler Group Otago Ltd, Dunedin. Email: pete@keplergroup.co.nz . A disclosure statement is available on request and free of charge.
