Christmas Clubs and the All-Cash Christmas

When my mom started her first job around 1950 or so, she didn’t have a 401(k), but she did have a Christmas club. Every paycheck showed a deduction for her Christmas club savings account, an account she emptied each December to buy gifts for her family and friends. She tells the story about her Christmas club deductions in the same tone of voice my father uses when he talks about ten-cent ice cream cones, with a hint of nostalgia about the former way of doing things.

When my mom was working away in the 1950s, Christmas clubs were a pretty good idea. Ordinary workers rarely invested in the stock market (which was seen as something for rich people to do), and Christmas clubs provided a systematic way for the middle class to save. People recognized holiday gift buying as an out-of-the-ordinary, but expected, expense and planned months in advance to be sure to have enough to cover it.

Christmas clubs still exist today, but they are hidden in the shadows with a host of other savings options – money market accounts, CDs, mutual funds, and even regular savings accounts – crowding the limelight. Few people see Christmas (or any other gift-giving occasion) as something necessary to save for. With the nearly universal availability of credit, the idea of saving for Christmas seems quaint. (O. Henry’s The Gift of the Magi would have little impact if it were written today – readers would ask, “Why would anyone have to sell anything to buy a gift? Just use a credit card.”)

Mary Hunt of Cheapskate Monthly has released a book titled Debt-Proof the Holidays: How to Have an All-Cash Christmas. I haven’t read it, but the idea that there’s a need for it shows how much has changed. Half a century ago, my mother’s employer encouraged her to save for Christmas so that she could afford gifts at the end of the year; now we need encouragement to cut back on our spending so we don’t have to pay off gifts through the following year.

An all-cash Christmas is certainly a worthy goal; however, I believe it should come naturally to someone who has been wisely managing finances throughout the year. It goes back to the basics – spend less than you earn, save as much as you can, get out of debt and don’t look back. Keeping separate accounts for separate savings goals (Christmas, vacation, retirement, college) may help you organize your finances, but once you’re in the habit of saving and living below your means, an all-cash Christmas should be a breeze – anything else would seem as absurd as selling your hair to buy a watch chain.

Christmas clubs themselves seem a bit outdated. Saving a bit from each paycheck for an expected but unusual expense is a great model to follow, but be sure a Christmas club is your best option before putting your money in one. Take the time to compare investment options; you can probably earn more somewhere else and still have the money available for gift-buying at the end of the year.