To Give or Not to Give? A Personal Finance Expert Weighs in on the Holiday Madness

Like any good frugal type, I’m plenty conflicted about holiday gift giving on all sorts of levels.

To begin with, I’m Jewish, but as you read this, I’m pulling presents out from under the Christmas tree. (Actually, I’m fine with that part.)

The more I think about the practice of exchanging gifts in modern society, the more it looks like the physical manifestation of a social media stream: highly calculated but usually misguided attempts to demonstrate one’s own cleverness and importance.

Even gifts given in a highly altruistic spirit usually fall short. I’m no exception: I give plenty of dumb gifts.

I’d assumed this was a caveman way of looking at things, but every December, my wife rereads a small book called Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays.

The book, by an economics professor named Joel Waldfogel, makes a simple argument:

1. Most gifts are (at best) not quite what the recipient wanted.

2. In other words, the recipient would be happier to have the cash value of the gift rather than the gift itself.

3. On average, therefore, giving gifts is a waste of time and money compared to just giving cash or charitable donations. Gift-giving actually destroys economic value by turning money into unwanted stuff.

4. This is not just academic thumb-twiddling: huge numbers of people go into credit card debt every year in order to fund their holiday shopping.

Here’s an example. I enjoy buying clothes and am picky about how they fit. Legend has it my parents are buying me a pair of pants for Christmas. (Hi, Mom! It’s me, your ungrateful wretch.)

Unless they’ve discovered some top secret pants breakthrough (parachute pants with actual built-in parachute? MC Hammer pants with actual built-in…never mind), giving me pants is silly compared to giving me cash to pick out my own pants.

Hmm, “pants breakthrough” doesn’t sound good at all, does it?

There is a perfect type of purchased gift, as rare as a unicorn. It’s the gift that the recipient absolutely loves and would have bought for herself but had no idea it existed. 

How often have you given or received a gift like this? Not often, I’d wager, and it’s getting harder to pull off, because every cool thing on earth gets linked up on Twitter or Pinterest long before the holidays.

Sweet and green

What’s wrong with cash, anyway?

I understand that, like social media updates, gift-giving is all about what economists call signaling. The gift itself isn’t the point; the point is to demonstrate how much we value someone by sacrificing our time and money, and demonstrate how well we know them by selecting an appropriate gift.

That sounds like an argument against Waldfogel’s thesis, but it’s not. Wanting to show our friends and family that we care about them is a nice impulse. No one short of the Grinch is opposed to that.

But showing our love by giving people stuff they don’t need or want, just because that’s what we’ve always done, is ridiculous.

What’s wrong with cash, anyway? We’ve created a massive and wasteful gift card industry just so people don’t have to shamefully hand each other envelopes full of twenties (or submit electronic bank transfers), even though any sane person would prefer cash to a gift card.

The stigma against giving cash is strongest when it comes to gifts from younger generations to older ones. This makes perfect sense: if I gave my parents cash for Christmas, I’d be implying that they needed a handout.

My parents don’t need a handout. They are comfortably retired and don’t need me to give them $50. But that means they don’t need anything I could buy them for $50, either. (Why do I keep picking on my parents? Apparently I have issues.)

My brother likes beer. We were going to give him a special bottle of beer and a $20 gift certificate to a beer shop. But we reconsidered: we’re giving him the bottle and a $20 bill. Somehow I doubt he’ll be disappointed.

The greatest gift of all

The greatest gift of all is a smile in the heart of…nah, I’m kidding. Sort of.

The ultimate gift would be something the recipient wants but can’t buy for himself, and which costs very little money to provide. I feel like a sentimental idiot even saying something so obvious, but the thing that best fits the bill is a child’s drawing.

One of the best gifts we ever gave my dad for his birthday was a cartoon about him that my daughter and I drew. It’s displayed prominently on my parents’ wall.

For adult-to-adult gifts, however, I’m really not sure what to do. There’s no way to explain why you’re not giving someone a gift without being a jerk, unless you’re an economics professor and everybody already thinks you’re a jerk.

This year, I stumbled on services like Giftly and GiftRocket, which let you give thinly-veiled cash. The recipient gets what looks like an electronic gift card for a particular restaurant or store, but it’s immediately redeemable for cash.

You could give this to an older relative without shame, I think, but should you? It still means demonstrating your love by giving cash to someone who probably needs the cash less than you do.

My wife writes letters by hand, which is a great gift for a certain type of person, but anyone receiving a handwritten letter from me would assume the Internet was broken.

My goal isn’t to be the dark cloud over your holiday celebration. This is a mea culpa: my family spent 25% less on the holidays this year than last year, but we still spend too much, and I’m a big part of the problem: I make sure those stockings are stuffed.

Diverting most of our gift budget to charity would make a lot of sense. Getting there without being sanctimonious—or downright Scroogey—is the tricky part.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.