'Scroogenomics' urges you to think twice before giving gifts

Considering buying those socks for your dad this Christmas? Before making the purchase, Wharton Professor Joel Waldfogel says you should think twice.

This is because the gift giver may place a much higher value on an item than the recipient would — and because the recipient would be better off buying a gift for himself.

The purpose of spending is to “create satisfaction,” Waldfogel explained. When someone spends $50 on himself, it will be worth $50 to him. It might even be worth more than that if it’s something he values highly.

By contrast, if he spends $50 on another person and the recipient doesn’t value the item as highly as $50, then value has been lost.

According to microeconomic theories and common sense, people are situated to make the best choices for themselves. As a result, spending money on gifts can cause much less contentment than spending money on yourself.

Every year, America’s holiday spending totals $65 billion. According to surveys Waldfogel has collected for years — he has been working on this “fun research interest” since 1992 — gifts produce 20-percent less satisfaction than purchases on yourself. In other words, gift giving destroys $13 billion — which is 20 percent of $65 billion — each year.

“And that’s just in the United States,” added Waldfogel. “Worldwide, it’s twice as much.”

From an economic perspective, Waldfogel said, buying gifts chosen by someone other than the person who will use it is the “perfect recipe for value destruction.”

Still, he said he is not against the idea of giving gifts — he’s “just against sloppy giving.”

What makes giving “sloppy” is that the giver does not know what the recipient wants, he explained. In situations where the recipient is a good friend or an often-seen family member, giving gifts might not be a complete waste.

When there is an obligation to give, however — the classic example being grandparents buying for grandchildren — it is easier to “miss the mark and destroy value.”

One practical solution is to give cash instead of gifts. This way, recipients can choose to buy something that they want, resulting in the greatest possible satisfaction.

Waldfogel said, however, that there is a “stigma” in giving cash. While it may be “socially permissible” for parents or elders to give cash, it is “socially awkward” for young people give cash to older people.

He has another solution — a Good Card, for which the gift giver decides the amount to give and the recipient selects which charity would receive a donation.

This also allows the recipient to enjoy “luxury,” he said, since charitable giving is considered a luxury good. Rich households tend to donate more, meaning as income goes up, its consumption also goes up.

As for his own book, titled Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays, published a few weeks ago, it’s not the ideal gift for everyone, Waldfogel said. “I have to live by my own rules — I certainly wouldn’t get it for illiterates.”

But if someone is interested in reading an “evidence-based rant against the celebration of Christmas as an orgy of value destruction,” he qualified, then it just might be the perfect gift.

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