Giving cash boosts economy during holiday shopping season

Posted: Dec 7, 2009 at 11:40 AM [Dec 7, 2009]

Giving holiday presents is inefficient. 

Cash? That's a much better way to boost the economy.

That's the conclusion of author Joel Waldfogel, whose says that, in pure economic terms, the nation would be better off if people spent money on themselves, not others.

"Per dollar spent, the things we receive as a gift are 20 percent less valuable than the things we buy ourselves," Waldfogel, author of "Scroogenomics: Why You Shouldn't Buy Presents for the Holidays," told the Wall Street Journal.

Translation: Grandma's holiday cash equals the biggest boost for the economy. Feels too cold, you say? Try gift cards, the closest equivalent. WSJ reports:

Cash or gift cards at least avoid throwing away that unwanted 20 percent, because they let the recipients buy their own gifts. (Though it's widely estimated that gift cards, too, have about 10 percent wastage.) It's funny that cash is considered somehow déclassé. You wouldn't order for somebody else in a restaurant. Why do we presume to choose their sweaters or cell phones or golf clubs?

Alas, however, gift card spending is expected to dip 5 percent this year, according to the National Retail Federation. The average holiday shopper expects to spend $139.91 on gift cards this year, down from $147.33 last year. That's a steeper decline than the 1 percent drop expected in overall holiday spending.

Larry Freed, CEO of Ann Arbor-based Web customer satisfaction firm ForeSee Results, offered these thoughts on gift card spending in a recent interview with AnnArbor.com:

Gift cards have been a steady increase over time. It sure is an easy way to buy a gift. I’m not sure if it’s going to increase. The price you then pay is clear as day to everybody, and if you’re trying to be more frugal when you're shopping, it’s a little harder to do that with a gift card. The flip side of that is if you’re concerned about the other person’s economic situation, you know they can get what they need, not just what you want to give them.

Contact AnnArbor.com’s Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter.