News Dispatch

How rational is your holiday gift-giving? Ask these fun-loving economists

This snowboarding Santa Claus has obviously read the research showing that "experiential" gifts give us more enduring happiness than material ones. Jonathan Hayward/The Canadian Press.

  • As inflation runs riot, about two-thirds of Canadians are planning to cut back on their holiday spending this year.
  • How much gifts actually matter to people is up for debate, as research shows people are generally more satisfied with experiences than material things, and half of Canadians claim they'd be content with a charitable donation gifted in their name.
  • Economists have calculated the "deadweight loss" inherent to gift giving to be about 3 billion GBP last year.

Canadians are planning to scale back their holiday spending this year, with about two-thirds saying they plan to spend less or the same as last year, according to a recent Ipsos poll.

It’s no wonder. Inflation has been running riot all year and, with the Bank of Canada hiking interest rates to get it under control, most Canadians are anticipating a recession in 2023.

While there are obvious and pressing reasons for people to scale back spending in the short term, we may also be changing how we celebrate the holiday season.

It could be that, when it comes to gift-giving, everyday Canadians are catching up with the convincing pile of research that suggests experiences are better for us than material possessions.

A team of researchers set out to explain why experiences seem to give us more enduring happiness than things and found that the anticipation is a key factor. While we anticipate Christmas, or other gift-giving holidays, we don’t normally get to anticipate the specific gifts because they come as a surprise. An experiential gift, like a trip, a concert, or even a dinner out with family, has a period of anticipation before the experience itself. We also seem to enjoy anticipating experiential gifts more than material ones.

This could represent a shift in how Canadians think about the holidays that would result in less money spent on gifts, more time spent together and, if the research is correct, happier people overall.

The Ipsos poll also suggests that nearly half of Canadians would be content with a loved one making a charitable gift in their name rather than a physical gift (provided the charity actually exists, of course).

There are two big caveats with that poll: it was conducted on behalf of a fundraising and donation platform, and people may overestimate their own generosity and civic-mindedness when speaking to pollsters. For example, when pollsters ask Canadians if they are going to vote in an upcoming election, the number is always much higher than the actual turnout. It’s also possible that the poll shows people are just getting less enamoured with “stuff.”

Economist Tyler Cowen writes that physical gifts have become an “inferior good,” whose value falls even as incomes rise and services, like Amazon, make it easier to purchase them.

Cowen entertains the idea that holiday spending is falling because people are becoming less generous as well as the theory that our high average incomes make it harder for people to buy gifts for us, but he settles on the conclusion that we’re simply realizing gift-giving doesn’t make sense.

“If you give me a gift and I give you a gift, neither of us is quite sure what the other wants. We might both be better off if we each spent the money on ourselves. Under this hypothesis, Americans are not becoming less generous, they are becoming more rational,” wrote Cowen.

And, if we’re still set on gift-giving, Cowen says there is no downside to spreading our generosity throughout the year, rather than blowing all our cash on Christmas.

The inefficiency of gift-giving has long been a topic of consternation for economists.

The economist Joel Waldfogel famously wrote about the “deadweight loss” inherent to gift-giving. As Cowen also argues, we don’t know each other well enough to be precise with our gifts. Waldfogel estimated that money we spend on others is worth about 85 percent of the money we spend on ourselves. Everything else, he writes, is just waste.

Using Waldfogel’s estimates, Ian Stewart, the chief economist at Deloitte, calculated that waste at about 3 billion GBP last year.

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