Overspending at the holidays isn’t a new problem, but a modern culprit may now be to blame: their smartphones.
Mobile wallets like Apple Pay or Google Pay typically are free, and people can use them to quickly purchase an item in a store or online. Without any speed bumps to checking out, consumers tend to not only spend more but make more frequent purchases, according to research published last year from the University of Illinois at Urbana-Champaign, New York University and Nanjing University.
That can be doubly dangerous during the holidays, when checklists are long and stress levels high. Almost half of Americans say they experience intense personal stress around the holidays, while one in four expect to take on debt to finance their purchases, according to a recent survey from Credit Karma.
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“Everybody’s to-do list is a mile long, and we appreciate it when we don’t have to work that hard to take something off of that to-do list,” says Matt Schulz, chief industry analyst at CompareCards.com. “That’s a lot of the appeal of these apps and these kinds of new mobile payments.”
But, he adds, “Much of the innovation that’s going on now, whether it’s contactless credit cards or apps or personal loans, is to separate folks from their money more easily and more quickly.”
Aside from mobile payment apps, merchants are also directly targeting consumers through ads on Instagram and other social media services. Mobile wallets and social media purchases are particularly popular with millennials and Gen Z consumers, according to new data from Salesforce.com.
Lastly, point-of-sale loans also encourage higher spending. These loans are offered by thousands of merchants including major retailers like Walmart, and through fintech firms such as Affirm and Afterpay when you check out.
Instead of paying upfront, these loans allow consumers to pay for a purchase over a number of weeks or months, or what Schulz describes as “layaway without the wait.” But they can spur consumers to spend more, with Affirm saying consumers boost their average order by about 90% when offered one of their loans.
Don’t ignore the little purchases
Consumers who use mobile wallets tend to spend 2.4% more on the typical transaction, according to the study from the University of Illinois at Urbana-Champaign. That might not seem like a lot, but consumers boosted the frequency of transactions by 24% when using mobile wallets. In other words, consumers end up spending more because they tend to buy more frequently when using mobile apps.
“Small, regular purchases add up and, if you’re not careful, this spending can have a negative impact on your overall financial health,” says Dana Marineau, vice president and financial advocate at Credit Karma.
Plan, plan, plan
Don’t start your holiday shopping without a budget, says Schulz. Aside from tracking your regular income and expenses, maintain a list of what you want to buy for friends and family members to avoid splurges or unplanned expenditures.
“For the average American this holiday season, a budget is absolutely crucial,” he says. “You can’t make great decisions about controlling your spending if you don’t know exactly how much you are spending and how much money you bring in.”
Research point-of-sale loans
Lastly, research point-of-sale loans before jumping into one, no matter how tempting it might be. Some loans charge interest, while others make money by charging late fees. Understanding the fine print will help you avoid an unwelcome surprise later on. And remember that these loans are another form of debt that are approved within seconds but lock you into months of repayments.
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“Debt is debt,” says Credit Karma’s Marineau. “The question is, can you take it on? This might seem obvious, but ask yourself if you can afford to take on more debt than you already have.”