“If you haven’t any charity in your heart, you have the worst kind of heart trouble.” – Bob Hope

Many people spend more during the holiday season than they can afford. Among other things, sometimes guilt or shame can drive a lot of big-ticket gifts — though not always, of course. But the satisfaction can be both short-lived and shortsighted.

Some children looking at a selection of Christ...

Some children looking at a selection of Christmas Cards during the 1910 holiday season. (Photo credit: Wikipedia)

Well, Wharton School professor Joel Waldfogel’s book, “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays” says that people are the most efficient when spending their own money, producing at least a dollar in satisfaction for every dollar they spend. But spending money on those we don’t know well results in what Waldfogel calls a “deadweight loss” of value — about 20%.

You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash. With Christmas & holiday spending in the United States at $100 billion, this loss results in “an orgy of wealth destruction” to the tune of about $20 billion. Ouch.

Waldfogel’s study found that givers with infrequent contact were those most likely to give less appreciated gifts. This group includes aunts, uncles and grandparents who live in another town. According to economists, people are better off when they make their own choices. For this obvious reason, Waldfogel suggests giving money or gift cards instead.

To the criticism that he has taken the joy out of Christmas, he responds that after watching desperate last-minute shoppers, he thinks the joy was taken out of Christmas long before his critique.

Of course railing against the commercialism and waste of the holidays is pretty common these days. So, let’s further breakdown what happens during this gift-giving season …

Some gift-giving is driven by social expectation, and becomes a test of the relationship. For example, for couples who are dating seriously, the message is much more important than the medium. Give a book the other person despises, and you have revealed how little you pay attention to your loved one’s opinions. But a pair of gloves, with a heartfelt note saying, “These will keep your hands warm when I’m not there to hold them” would show your affectionate side. Or maybe the receiver doesn’t like romantic mush, and you are expected to know better.

Parents can help extended family members select gifts for their children by providing specific wish lists to ensure that what they buy will truly be appreciated. If you aren’t confident, include a gift receipt. You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash.

And in families where children don’t have any spending money, cash may be the best possible gift. Handling cash with all the complexity of choice is an experience that offers irreplaceable life lessons.

Try asking people, “What present changed the course of your life the most?” to see just how much influence you can have. A pair of binoculars sparks a love of ornithology. A telescope fuels a fascination with astrophysics. A microscope leads to a biology career. An electronic toy prompts your daughter to join a robotics competition.

Not all presents need to be academic. A graphics tablet can lead to a design career. A guitar can inspire your son to form a new band. Or a video camera can lead to a later career choice in filmmaking.

Finally, some parents who are still unemployed will disappoint their children if they are hoping for expensive gifts this year. I’ve known a few families who had to tell their children that celebrating a traditional American credit card holiday would jeopardize the family’s financial security. Being financially cautious doesn’t mean you love your children any less. And if you can be positive and reassuring, you needn’t try to shelter your children entirely from household economics.

The greatest joy of the holiday season is not bought in a store and does not increase your credit card debt. There is a better way to celebrate that builds long-lasting family ties.

Make a list of all the things you have gotten right in past holidays, and make them annual family traditions. Add a few new ideas every year.

After all, the best holiday traditions don’t cost a lot of money, and they aren’t wrapped and put under a tree.

Here is a free gift.  Click on the link above for a free report on how to save more taxes this year.

Enjoy

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