Cash or Gifts?

In the CNBC article on “Scroogenomics: Why you should scrap the presents and give cash at Christmas,” there are many references to Joel Waldfogel’s book; Scroogenomics, and his theories on Utility (the satisfaction that a consumer receives from consuming something). The article states that the only way to maximize utility is by allowing consumers to buy themselves things that they know they want and would enjoy. Therefore, theorist Joel Waldfogel believed that ‘gifting’ cash or gift cards would be the best solution, by removing the risk of dissatisfaction.

Furthermore, the book Scroogenomics states that consumer spending generates lots of economic waste. This is because when we buy something for ourselves, the money we spend is directly proportionate to the satisfaction we get form this product. Whereas, when someone else buys a gift, it destroys the gifts actual value, as we are not aware of how much they spent, and we might have spent that same amount of money on something else. This is a term defined as deadweight loss.

Although Waldfogel concluded that; “We value items we receive as gifts 20 percent less, per dollar spent, than items we buy for ourselves,” Adam Button suggested that this theory would be much better explained by a psychologist because consumer behavior is not rational, and therefore can not be explained by mathematical formulas.

Another economist, Kit Yarrow stated that “Ideally gifts are to enhance, celebrate (and) cement relationships - not just acquire goods.” This is an extremely valuable point, and as mentioned in the article, not buying gifts during Christmas may be seen as quite cynical, and destroy the whole idea of this celebration. However, as economists, we must be aware that we have the option of gift cards or a gift to charity in their name. These are two ideas for solutions that don’t have the same taboo as gifting money, and don’t destroy the value of your gifts.

Personally, I think that gifts given from people who know you well can bring you just as much satisfaction as a gift you would chose for yourself. For example, my parents know my wants and needs very well and know exactly what to buy for me. However, a distant relative may not know me well and not know what I want, and in that case, maybe a gift card would bring me more satisfaction than a present they selected. Therefore, I do agree with this theory to a certain extent, as it really does depend on the gift giver and the relationship you have with them.

So please remember this when buying me Christmas presents :)