An Orgy of Value Destruction

This is how University of Minnesota economist Joel Waldfogel describes the holiday season. I put it in the title because I figured the word “orgy” would capture your attention. If you blundered into this blog from a Google search, you’re probably going to be sorely disappointed. Since this is our last blog entry before Christmas, I thought it would be fun to share some statistics I found regarding holiday gift-giving.

I have never been a big proponent of spending money I don’t have on stuff that nobody wants just because it’s what everybody else is doing. Of course, everyone loves a gift card, but after a few years of exchanging gift cards with our adult relatives (explain the point of this, please) my husband and I decided that we would only buy gifts for the younger children and my in-laws (because if we didn’t do the latter…well, you know). Now we are free to celebrate the season without incurring massive amounts of debt. As a result, I tend to weather the month of December with much more holiday cheer and far less stress than would otherwise be the case.

Clearly, this practice is not very common. Waldfogel has found that Americans spend about $65 billion on holiday gifts every year, with the average person giving 23 gifts. And all that time and money is largely a waste, because – surprise! – most people don’t like what they get.  Apparently, the typical value of a gift to its recipient is 20% lower than its cost, hence the “orgy of value destruction.” But if you’re one of the poor souls trapped in a vicious cycle of obligatory gifting, what do you do?

In this Bloomberg article, two tips were proffered based on the findings of behavioral economics. The first is to beware an “egocentric bias” – you may pine for pastured pork, but your vegan aunt probably won’t appreciate a cured pork gift basket from a local farm. The second is to manage your expectations. Chances are, the recipient of what you think is a fabulous, expensive gift will either, a) forget about it 2 seconds later, or b) be just as happy with something more personal and less costly. One way to avoid this whole predicament, Waldfogel suggests, is to make a donation to charity in the recipient’s name. My husband and I have repeatedly suggested this to my mother-in-law, but for some reason it hasn’t been well-received – I think she views it as too impersonal. So I’m going with #11 on Dave Barry’s Annual Gift Guide – an emergency underpants dispenser for $6.95. It’s economical, and it’s definitely personal. And if she values it at $5.56, I can live with that.

Happy Holidays!

Sarah DerGarabedian, CFA
Director of Research

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