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Johnson: The True Cost of Holiday Shopping

Ivory Johnson |Scarborough Capital Management, Inc
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Bargain hunters shop for discounted merchandise at Macy's on 'Black Friday' on November 25, 2011 in New York City.
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With Europe in despair and the U.S. economy still sputtering, consumers rolled their eyes like dice, wagering family budgets on Black Friday. Sales increased by 6.6 percentthe day after giving thanks for what we already have, an indication that Congress isn't the only house with a spending problem.

As a whole, Americans have $2.4 trillionin consumer debt, $800 billion of which is from credit cards. It's important to note that paying $300 a month on a $10,000 balance of revolving credit at 10 percent would take 10 years longer to satisfy than a fixed loan with identical terms. In the words of Toni Morrison, "every brothel don't hang a red light in the window".

It's worth noting that consumers moderated their debt and increased savings rates in the wake of the great recession. Whether these modifications are a function of responsible behavior, strict lending practices, the lack of home equity value or some combination of the three remains to be seen. One can only hope the recent $11.4 billion shopping spree doesn't exhume past indiscretions.

Money, however, is often used to mask perceived shortcomings. Some employ luxury items to prove past naysayers wrong while others showcase material possessions to legitimize their self worth and make amends for a deprived childhood. There are also legions of financially disabled children marching through the malls, handicapped by the exuberant lifestyle of parents they attempt to imitate without the proper means.

The opportunity costs of shopping is reflected in the lackluster savings rates, as the average 401(k) balance is $74,900and 25 percentof baby boomers have nothing set aside for retirement. Compared to other industrialized countries, the U.S. ranks behindCanada, Italy, France, Germany and the United Kingdom in the rate of household savings.

And while retirement savings have increased by three percentfrom 2010, a five percent distribution from a diversified portfolio has an estimated 35 percent chance of running out of money within 30 years due to market volatility - every dollar counts. Even those on sound financial footing with clean balance sheets might be unable to maintain the same quality of life once they leave the workforce without an adequate nest egg.

Oddly enough, reckless consumer spending contributed to the housing bubble.

It seems that Americans bought inexpensive goods made oversees with U.S. dollars obtained from cash-out refi's that were subsequently used by foreign investors to purchase our government bonds. As the price of fixed income increased, interest rates declined, prompting more exuberant behavior that started the cycle all over again.

A fair number of Americans are determined to accumulate more stuff by hook, crook, or in one case, pepper spray. Keeping up with the Jones' was appealing, but it turns out the Jones’ were trying to keep up with the Kennedy's - good news when 70 percent of GDP comes from consumer spending and 19.4 percentof total retail sales are the result of holiday shopping. It's great in theory, but then again so was communism, and we all know how that turned out.

Ivory Johnson, CFP, ChFC, is the director of financial planning at Scarborough Capital Management, Inc. and has over 20 years of investment experience. Mr. Johnson attended Penn State University, where he received a Bachelor of Science degree in finance. He can be followed on