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One dark December evening, sometime in the early 1980s, my father sat down to have a serious chat with me. That Lego spaceship I was dreaming about for Christmas? It might never arrive. Our boiler had broken; fixing it was going to be expensive. I should not hope for too much.
Perhaps this was just a bit of smart parenting on my father’s part: perhaps I had taken to viewing a substantial Christmas present as a basic human right and he was just putting a shot across my bows. After all, I did get the Lego. (It was the Space Cruiser, set number 487, a classic that gave me many hours of pleasure. Thanks, Dad.)
Then again, perhaps we really were financially embarrassed, and perhaps my parents were not sure that an alternative source of finance would materialise. Plenty of families will be in a similar situation this Christmas. The Joseph Rowntree Foundation, which uses a thoughtful and innovative methodology to estimate the minimum income necessary to achieve a “socially acceptable” standard of living, reckons that a family of five with one breadwinner – my situation today and my father’s at the time – needs £690 a week before tax. Since 80 per cent of employees earn less than that, it is easy to see why many families require two incomes, and why many struggle at Christmas.
Yet the conversation still feels extraordinary by today’s standards. Christmas presents for your own children do not seem like an optional extra. Is this because Christmas itself has become more of a consumerist blowout than once it was? Surprisingly, the answer is no: Joel Waldfogel, author of Scroogenomics , estimates that in the US the December bulge in retail spending was far larger in the 1930s than it is today, relative to the size of the economy. The modern Christmas is not especially extravagant.
What, then, has changed during the past 30 years? The answer, surely, is the availability of credit. If I was wondering how to buy Christmas presents and fix a broken boiler – actually, both issues are on my list of things to do today – and if I lacked savings to address the issue, I would instinctively reach for a credit card. That is not the way things used to be. Waldfogel – again, using US data – estimates that in the 1930s, about a 10th of Christmas spending was financed through “Christmas clubs”, savings accounts that were easily accessible only in the run-up to Christmas.
Christmas is now financed in arrears, not in advance. Waldfogel reckons, looking at seasonally fluctuating data about credit card balances, that a third of Christmas spending has not been paid off by the end of February. This is a change in spending patterns that has developed rapidly since 1980, and, at an interest rate of 20 per cent or so, it does not come cheap.
What seems so archaic about that fatherly chat, then, is not a change in household incomes or in Christmas bingeing but in the availability of credit.
Over the past three decades we have drawn ever closer to the highly convenient world, assumed to exist in many simple economic models, in which we can effortlessly shift our spending backwards and forwards to whenever suits us. As long as total lifetime spending plus interest equals total lifetime income plus interest, no boy need ever lose out on a Lego space cruiser because of a pesky boiler repair.
Whether you are an ambitious mortgage provider, a European nation state, a first-time house buyer or just a parent without rainy-day savings, the past four years have delivered a tough lesson: access to credit is not a right, conveyed by a disinterested, omnipotent and benevolent free market. It is a privilege, granted by flesh-and-blood creditors. And it is a privilege that is both bestowed and withdrawn on a whim.
Tim Harford’s latest book is ‘Adapt: Why Success Always Starts with Failure’ (Little, Brown)
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