Americans are spending more this holiday season, but not on presents that go under the tree.

While prices for toys and electronics started to come down just in time for Christmas, people are shelling out much more on dining, entertainment and tickets, Bank of America’s card data shows. Spending on services rose 2.5% last month while retail spending excluding restaurants fell 1%.

Financial professionals and economists say spending money on experiences delivers longer-lasting joy than buying stuff. Investing in more quality time is also normally good for your bottom line.

But this year, the higher cost of fun might frustrate consumers hoping to cut their overall spending. Prices for services, which include things such as travel and entertainment, rose 5.5% over the past year while overall inflation rose 3.1%, according to the latest consumer-price index.

Traci Rosenthal and her partner agreed to cut their holiday budget so they could spend more on doing things together, such as catching Broadway shows. They skipped their normal gift exchange for Hanukkah and their December anniversary.

The 36-year-old New Yorker then slashed her gift budget for her colleagues by 40% and trimmed the tips she normally gives her building’s doormen. Still, she estimates her holiday spending has already increased about $800 compared with last year because of higher costs for travel, food and outfits for holiday festivities.

“It’s pretty much impossible to pull back on eating out and alcohol spending,” she said. “If you’re going to do it, you’re going to spend more this year because everything’s more expensive.”

Rising bills

Americans are expected to spend nearly $1 trillion this holiday season, marking a 15th straight year of growth, according to the National Retail Federation. Over the past two decades, holiday spending declined once, falling about 5% between 2007 and 2008.

Already, the average household spent 1% more on holiday items in November. That metric is likely understated because of the increasing popularity of Buy Now, Pay Later, which isn’t reflected in the bank’s internal spending data, said David Tinsley, senior economist at the Bank of America Institute.

The increase in holiday season spending comes despite many shoppers who had planned to spend less than last year, the Bank of America study found. Analysts say that higher wages and access to cheap credit has given these savers an incentive to spend more even if they would such as to cut back.

This year, Ailsa Johnson, a recruiter based in Orlando, Fla., is spending Christmas at her parents’ home in the U.K. for the first time since the pandemic. She usually spends about $500 on gifts for family when she stays in the U.S. for the holidays to make up for the distance, and makes homemade treats for her friends in the States to save money.

But Johnson’s recent promotion and year-end bonus meant she could cover her travel expenses without shrinking her gift budget. Though she doesn’t feel the need to pull back spending to make ends meet, she has started to feel anxious about her cash flow.

“You feel it when you’re spending more money, no matter what you’ve got in the bank,” Johnson said.

How they pay

Not everyone has the money saved to cover higher holiday expenses, especially younger Americans. More than 40% of Gen Z and millennials expect to go into debt to make it through the holidays, Bank of America’s data and survey results suggest.

Younger shoppers are taking advantage of financing options such as Buy Now, Pay Later to cover expenses they can’t afford upfront. BNPL accounted for 7.2% of all online sales over Black Friday and Cyber week, up 25% from last year, according to Adobe Analytics.

Unlike carrying a balance on a credit card with a high interest rate, “Pay in 4” plans offered by BNPL companies allow shoppers to pay for purchases in fixed installments interest-free. The cheap short-term loans have accelerated consumer spending, Wells Fargo analysts wrote in a research note earlier this month.

The services also make it easy for people to overspend and might lead to higher debt down the line, they said.

Aside from BNPL, shoppers are also looking for any way to avoid using a credit card. Last year, the average annual percentage rate on cards was 16%. This year, it has risen to roughly 21%, according to federal data. Credit-card balances rose 4.7% to $1.08 trillion outstanding in the most recent quarter.

Rosenthal, the New Yorker, said the $600 flight to Florida to visit her parents this month was twice the price she expected. She used her credit-card reward points to make it work without going into debt.

“I had to get a little creative with it,” she said.

Write to Imani Moise at