As we head for the Christmas season, consider this bit of news—some parents are withdrawing funds from their 401(k)s to pay for the kids’ presents. Although it’s a small percentage of savers currently, the number is rising.
T.Rowe Price’s 2015 Parents, Kids & Money Survey, which sampled 1,000 parents nationally of 8 to 14 year olds in January 2015, revealed that 62% of parents agree with the statement, “I spent more for my kids over the holidays than I should have.”
While most parents use their current income (56%) and credit cards (47%) to cover holiday spending, a surprising percentage have also tapped their retirement savings (7%) and their emergency fund (9%).
“It’s always tempting to splurge around the holidays, but parents aren’t doing themselves or their kids any favors by overspending,” says Stuart Ritter, CFP®, a financial planner. “We’re all inclined to be more generous this time of year, and it’s important to be mindful of the financial trade-offs we’re making and stick to a budget that aligns with our priorities.
“Our long-term goals, such as retirement savings and having an emergency fund, should always take priority over anything that is presented with a bow and purchased during a Black Friday sale. Kids will always have long wish lists, and it’s good for them to know that there isn’t enough money in the family budget to cover everything. Challenging them to prioritize their wants and make trade-offs is essential to helping them develop critical financial capabilities.”
According to the survey:
- Some parents save for the holidays: Over a third of parents (36%) save for the holidays throughout the year.
- And most overspend on the holidays: 62% of parents agree with the statement, “I spent more for my kids over the holidays than I should have.”
- Parents who overspend on holiday purchases are more likely to argue: 50% of the parents who overspent on the holidays argue about money with their spouse, while only 27% of parents who did not overspend argue about money with their spouse.
- A minority of parents have used retirement savings and emergency fund: 7% of parents have tapped their retirement savings to pay for holiday purchases, and 9% have used their emergency funds. Holiday spending prioritization: Some parents are prioritizing holiday savings over saving for long-term goals.
- Nearly a third (30%) of parents who do not regularly save for retirement do save regularly for holiday spending.
- Over a quarter (28%) of parents who do not regularly save for their kid’s college education do save regularly for holiday spending.
- 62% of parents who feel they set a good financial example for their kids don’t save for holiday spending throughout the year.
- Moms have better holiday saving habits than dads: Moms are more likely to save for holiday spending throughout the year, while dads are more likely to use inappropriate funds when it comes to paying for holiday spending.
- 40% of moms said that they save for the holiday season throughout the year compared with 32% of dads.
- 11% of dads said that they used an emergency fund during the holidays compared with 6% of moms.
- 11% of dads have used retirement savings to pay for the holidays compared with only 3% of moms.
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