Paul Clitheroe
Paul Clitheroe

Simple steps for a moneywise Christmas

LOOKS like it's going to be a merry Christmas for retailers, with industry figures predicting Australians will collectively spend around $30 billion dollars at the shops this festive season. It's not just how much we spend that will impact our finances - it's also worth thinking about how you pay and what you buy.

It's easy to let the holiday spirit take over and get carried away with Christmas shopping. But for a sure way to keep spending under control try leaving your credit card at home.

Now, this probably won't surprise you, in fact it's likely to confirm what you've always suspected. According to a study by the University of Chicago, we tend to spend more when using a credit card. That's because the financial pain of making purchases isn't as obvious when we pay with plastic rather than cash - and that can lead to overspending.

If you need further encouragement to leave the credit card at home when shopping, consider this.  Comparison site RateCity reckons the additional card debt generated by festive season purchases could see Australian card holders collectively slugged with interest charges totaling more than $10 million. The cost won't be felt until the bills start to arrive in January, so if you're keen to start the New Year with as little debt as possible stick to using cash or a debit card at the check out.

It also pays to consider how any Christmas gifts you buy over the next few weeks could impact your budget throughout 2014. This especially applies to parents who may be considering buying a mobile phone for their child.

A report by The Australia Institute a few years ago found Aussie kids have one of the highest rates of mobile phone ownership in the world, and while it may be reassuring to know you can contact your child at all times, a new mobile will bring additional call charges.

Research by Suncorp found parents are forking out around $4 a week in mobile costs for primary aged kids, and about $17 a week for teenagers. It means you could be up for around an extra $900 annually in phone bills for one child alone. That makes it worth doing the sums to make sure the ongoing expense won't drain the family budget.

While you're shopping for the kids, a simple gift like a piggy bank can offer valuable benefits. The same Suncorp survey found children can earn several hundred dollars in pocket money each year. Apparently children aged between five and twelve receive around $9 in weekly pocket money, while teens are more likely to earn about $14 each week.

Pocket money is a great tool for teaching children healthy money habits - like saving at least part of their weekly pocket money. If you get chance over the summer break, think about opening a bank account for your child. Many financial institutions offer savings accounts dedicated to children, and they often feature more generous interest rates than you'll find with many adult savings accounts, with some kids accounts paying over 4 percent. It could help your child get started with a savings habit that lasts well beyond Christmas.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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