This article focuses on giving gifts to family members. If you’re interested in charitable giving as part of a larger financial plan, learn more about Betterment’s charitable giving service.
Americans love to give gifts. During the peak gift-giving season – the holidays – the average family budget is $749.51. And as wedding and graduation season approaches, many are set to pull out the plastic in honor of others.
But is that money well spent?
Joel Waldfogel thinks not. Waldfogel is the chair of applied economics at the University of Minnesota’s Carlson School of Management, and he has a particular area of interest is the economics of gift giving.
Waldfogel’s gripe is not with giving, or spending, but with spending badly. His rationale is that if I spend $50 on something, that item is likely worth $50 to me. But if I spend $50 on an item for somebody else, that item might only be worth $30 in value to them – or worse, if I don’t know them well, worthless.
In Waldfogel’s words: this is a bad way to allocate resources. This process, he explains, is economically inefficient: “In the U.S. we spend about $80 billion on holiday gifts and it would be nice to get $80 billion of satisfaction out of it. ”
Seemingly, the takeaway is this: Let’s strive for value for money in gift giving. If you know someone well enough to know what they want, by all means purchase them a gift. But if you’re not so close, perhaps reconsider the token gift.
Waldfogel suggests one alternative – gift cards.
But the problem with gift cards is that balances often remain unused. Two billion dollars in gift cards went unredeemed in 2012. That might work in the retailers’ favor but it’s unlikely what the gift giver had in mind. While cash gifts are sometimes frowned upon, in most cases we are best situated to choose for ourselves. A cash contribution might just be the best gift after all.
Joel Waldfogel thinks so: “The problem with spending on holiday gifts is that the buyers don’t necessarily get something more valuable than the price. And they (the recipients) certainly don’t get something, on average, more valuable than what they could have purchased with the same amount of money.”
It’s important to note that there is value in the act of giving gifts – especially on the part of the gift giver. Studies have shown that people experience greatest levels of happiness when giving to others.
The takeaway? Keep on giving, but be efficient in the gifts you give.
Learn more about Betterment’s charitable giving service here.
Get All the Returns You Deserve
We set out to make investing more efficient—and we have. With our platform, your investor returns can get a boost of 2.66%.
Optimizing Performance in Lower Risk Betterment Portfolios
In this methodology, we provide insight into how we optimize the performance of the lower risk bonds in Betterment's portfolios, including Smart Saver.
What Charity Navigator’s CEO Thinks about Betterment Charitable Giving
We wanted to learn how Betterment’s charitable giving service could affect the world of nonprofit development at large. So, we went to an expert: Michael Thatcher of Charity Navigator, the nation’s leading platform for helping donors make smart choices for their charitable donations.
Explore your first goal
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.
How would you like to get started?
Your first step toward a smarter investing future starts here.
Create a Betterment account
Go ahead and join the smart, modern way to invest.
See what we can do for you
Tell us a bit about yourself, and we'll show you the benefits of investing with us.
Get a free investing checkup
Help us get a sense of your investing approach and see how you could improve.
Transfer a 401(k) or an IRA
Move an existing retirement account into a Betterment IRA.
Download the mobile app
Enjoy the Betterment experience anywhere on the go.