Joel Waldfogel, an economist at the University of Minnesota, talks to his daughters about what makes a good present — and when to give cash or gift cards.
Joel Waldfogel: The ideal gift is something that you wouldn't have bought for yourself, maybe because you didn't even know about it. Now that you've got it, you think, "Wow, this great; I wish I'd known about this. Thank you so much for introducing me to it."
But as we all know, that's a really tall order. The challenge with the holidays is that all of a sudden you have to do that for all your friends and acquaintances and family members at once. And you just can't.
So that's why, back in 1993, I published a paper called "The Deadweight Loss of Christmas." And in 2009, I wrote a book called Scroogenomics: Why You Shouldn't Buy Presents for the Holidays. I argued that we are able to choose gifts well only for people we know really well. With everyone else, we might be better off giving cash or gift cards.
The basic reasoning is this: As an economist, I see gift giving as a method of resource allocation that is entirely free of all of the good disciplines that we usually attribute to economic decision-making.
We are able to choose gifts well only for people we know really well. With everyone else, we might be better off giving cash or gift cards.
Normally we only make purchases for ourselves if we see something that's worth more than the price. If we see something that costs $100, we buy it only if it's worth at least $100. So normally, spending actually creates satisfaction. In fact, in dollar terms, normally the satisfaction associated with any amount of spending exceeds the amount of spending that occurs.
With gift giving, I'm buying something for someone else, so I don't impose that discipline — I can't, really. I don't know what you want. I don't know what you need. So I can spend $100 on you, and I might turn out to be unlucky and buy something that's worth, well, in the worst case, nothing to you.
I recently spoke with my two college-age daughters, Hannah and Sarah, about what gift giving was like in our house when they were growing up, and how they feel about gift giving now that they're older.
Hannah Waldfogel: When we were younger, we had no idea our dad felt this way about gifts. For little kids, you can get them anything. Gift giving is exciting and fun.
Joel: Right. I'm not going to give my 5-year-old cash. People actually do a pretty good job when their recipients are people they know well or see frequently. Parents do pretty well for young children.
Sarah Waldfogel: For the most part, our gifts were pretty spot-on when we were kids, because my dad knew what we wanted.
Joel: Once kids hit about middle school, though, they start to have pretty well-defined preferences. With little kids, the reason it works pretty well to give them gifts is because they don't have such well-defined preferences that they're easy to disappoint.
Sarah: Yeah, middle school was the turning point — that's when we started making detailed lists. When I was 11 years old, I made a PowerPoint explaining why I wanted each of the gifts on my list. I had pajama pants on my list, and I explained that I didn't have any pajama pants that fit anymore. That was on my PowerPoint.
Joel: We probably would have given you pajama pants anyway, without the explanation.
Sarah: I was just being careful — going above and beyond.
Joel: Yeah, you knew that Mom and I used PowerPoint in our jobs, and you wanted to make a grown-up presentation. You wanted to make a reasoned argument that would be compelling to your parents. I don't recall you asking for anything pathological, so it probably wasn't necessary, but I think it was in that spirit: "I want to convince you that this is a worthy thing for you to get for me."
When I was 11 years old, I made a Power Point explaining why I wanted each of the gifts on my list
Hannah: There was the time I wanted a Juicy tracksuit. I think I was 12. And you didn't give it to me. But then you did give it to me when I was a freshman in high school, and I wore it once and then threw it away. So you were right.
Sarah: And sometimes it went the other way — there was a time you gave us something even though we told you specifically that we didn't want it.
One year, I specifically asked my dad not to buy us a Wii. I knew it cost a lot of money, and I also knew that I wouldn't play it very much because I already had video games that I liked. But sure enough, I opened one of the presents, and there was a Wii.
I was pretty mad, because I knew how much money we had wasted. That was a big mistake. Why did you do that?
Joel: Well, probably some combination of I wanted the Wii for myself and that I thought you actually wanted it but you were being too frugal in your thinking. I was worried that you were only 11 and already thinking like a Grinchy grown up. You were thinking, "Don't do it if it's not worth it," as if you were some kind of natural-born economic thinker.
Hannah: Which she is.
Now that we're older, we try to give each other thoughtful presents. A few years ago, I saw Sarah staring at a backpack at Target. She tried it on and seemed to like it, but she put it back. And I thought, "Oh, I can get that for you." So I did.
Sarah: Yeah, and you also make me scrapbooks with funny pictures. That's not something I'd ever be able to buy in a store; it's not something I would ever put on a list. But I'm so happy when I receive them.
Joel: But this kind of thing only works when you really know the person you're giving the gift to. The givers who do most poorly from the standpoint of how much the recipients value it per dollar spent tend to be people like aunts and uncles and grandparents and in-laws, and it's precisely because they're not in frequent contact with the recipient.
My mother-in-law does a wonderful thing, though. Every year she gives me a gift card for a store where I shop frequently. It's perfect — it's thoughtful, and it's really, really useful.
Sarah: When I tell my friends about my dad's book, they automatically assume that I don't get gifts, or that I live with Scrooge. But then when we start talking about how we do gift giving in our houses, it's pretty much the same. I tell them how I make a list and the reasonable things on the list I can expect to find under the tree. They say, "Yup, that's how it works at my house, too."
Joel: Yeah, Sarah was giving me a hard time recently. She said, "You know, Dad, it's not like you discovered something new here."
Joel Waldfogel is the Frederick R. Kappel chair in applied economics at the Carlson School at the University of Minnesota and the author of Scroogenomics: Why You Shouldn't Buy Presents for the Holidays. Hannah Waldfogel is a senior majoring in psychology at Northwestern University. Sarah Waldfogel is a sophomore at Carleton College planning to major in economics and math.