If you still haven’t gotten a holiday gift for someone — or anyone over the age of 12, for that matter — you’ve come to the right place. As an economist, I can assure you that not only have you acted responsibly, even thoughtfully. It may not be too late to make the right decision either.
Every holiday season, people ask me how much to spend on gifts. The most important question is what is a gift and how much is it worth.
Often what we buy is all wrong, blowing holes in personal budgets. People usually spend more than expected on gifts. The average annual cost is $650, making no one happier. People give expensive gifts to partners who break up with them, and worse.
At Christmas, one person in five goes into debt. Publishers tell me that January is the perfect time to sell financial advice books – people are chastised for overspending and a little scared.
Almost always, the gift is worth less to the recipient than what the giver paid for. We all know that Sam would sell the $25 mug you gave him for less – estimates are 10-30% less – producing a “deadweight loss” of $8. When you add up all those unwanted, given back or thrown away mugs, earrings, games, sweaters and other gifts, I estimate that the total loss of dead weight Americans this Christmas could be around $170 per person, or 32 billions of dollars.
Each year finds us searching for a solution to dead weight: white elephant parties; $20 limits; couples pledging “no gifts this year, honey”; and charities instead of gifts. Or we contemplate a thoughtful homemade gift. But we are freaking out. We’re still clicking Amazon and rushing to malls in a Christmas countdown frenzy.
So while that may sound dreary, the green-eyed economist says the most effective gift is simply cash. If you want to share feelings, make your own cards because $5 cards are probably worth $4.50.
Despite the advice to spend less on gifts because they aren’t worth much, at this time of year economists go behind – we’re in the way of anthropologists and sociologists. This is because gifts are really about something else. They are often the first step in building a social relationship. And when gifts are refused or not reciprocated, relationships break down. They are also pure commodity exchanges. They are not gifts at all.
In one of the many columns of practical advice on gift etiquette – what to give to whom and how much – it is clear that gifts are a social expectation, to give something to get something; that’s about as close to exchanging money for services as you’ll find.
Sociologist Theodore Caplow studied Christmas gifts in Muncie, Indiana in the late 1970s, collecting data on 366 Christmas gatherings and 4,347 individual gifts. Giving turned out to be a rigid ritual, not the voluntary, spontaneous exchange that people said. The participants offered a gift each to their mothers, fathers, sons and daughters, and to each of the spouses of these people.
A person was expected to give something to their own spouse. Participants expected to receive at least one gift in return from each of these people. And that was over 40 years ago, before the flood of cheap imports and Amazon made it easy to giveaways.
To help pay for all of this, financial site Bankrate suggests working harder to ease the stress of the holidays, but that sounds more stressful to me.
This year, JP Morgan reported that spending would be down, primarily for airfare and accommodation, likely due to fear of the omicron variant, but also for retail purchases, partly due to concerns about inflation.
But relationships strained by pandemic-induced distance and overall price increases almost condemn us to spending more than we want. Consulting group PNC calculates the cost of the Christmas index, comparing the prices of “Six Laying Geese” and “Seven Swimming Swans” and so on from year to year. It has increased by 5.7% since 2019. The internet can make cost comparisons effective, but it’s also easier to spend more than you want due to impulse purchases and rising shipping costs.
Am I taking my own advice? One of my favorite birthday cards shows a wise Buddhist monk opening a gift box tied with a big ribbon. Open the card and you see an illustration of an empty gift box. The monk said, “Just what I always wanted, nothing.” The irony makes me laugh because no one ever thinks that way.
I bought 10 of these cards at $4.95 each, and gave them away over the years with a nice big birthday present. I’m not stupid – I value my social relationships (almost) more than my money.
Teresa Ghilarducci is the Schwartz Professor of Economics at the New School for Social Research and a board member of the Economic Policy Institute.