What's the 'right' amount to spend on holiday gifts?

What's the 'right' amount to spend on holiday gifts?

Gift giving is a big deal this time of year.

To find the “perfect” gift, Americans will spend about 15 hours shopping. Women will do about twice as much as men. And they’ll shell out about a trillion dollars on gifts.

While retailers relish the holiday shopping season as a time when consumers open their purses or wallets, for many consumers – especially those who don’t like shopping – these days are filled with dread. They mark moments when shoppers clog malls, websites become overloaded and delivery trucks block streets. The entire process generates untold amounts of stress and anxiety.

One source of stress is just how much to spend on gifts. Spending too much can put you in financial distress. Spending too little may make you look cheap.

How do you decide what’s the “right” amount to spend on gifts?

A large fraction of retail shopping is driven by seasonal events such as Black Friday, Cyber Monday and Super Saturday – also and more appropriately known as Panic Saturday – which is the last Saturday before Christmas.

‘Dead weight loss’

Gift giving is stressful because nobody wants to buy what they think is a perfect gift only to discover it’s a dud.

The long lines of people returning items after the holidays seem evidence enough for that.

This has led some economists to argue there’s a “dead weight loss” to Christmas presents that “destroys” as much as a third of their actual value. A 2018 study estimated Americans spend $13 billion a year on unwanted gifts.

Other economists, however, have resisted this Scrooge-like view of gift giving and point to evidence that a present can actually have more value to the recipient than the price the giver paid. In other words, a gift, even when technically unwanted, could have more value simply because someone else bought it for you.

Setting a budget

So if you’re dead set on buying some gifts, how much should you budget for it?

Gifting is a social act, so it makes sense to consider how much other people typically spend.

There are a number of surveys run each year that ask people in the fall to estimate what they plan on spending for holiday gifts. The National Retail Federation’s annual survey of holiday spending estimates the typical American will spend $659 on gifts for family, friends and co-workers in 2019. On the high end, Gallup puts the average at $942, with more than a third of respondents expecting to spend more than $1,000 on gifts.

But $659 means something different to someone making $40,000 a year versus someone who makes $200,000.

That’s where the Consumer Expenditure Survey comes in. It’s a large survey run by the Bureau of Labor Statistics that tracks the spending habits of 12,000 to 15,000 families each year. The government uses the survey to determine the cost of living and inflation rates for the typical family.

The survey follows gift giving very precisely. It has categories for common holiday presents such as electronics, books and clothes, as well as gifts that typically aren’t associated with the season, such as housing and transportation.

After removing these non-holiday gifts, the typical U.S. family spends about 1 percent of its annual take-home pay on gifts. So whatever you earn, you could multiply it by 1 percent to get a figure that is in the ballpark of what the average American spends – but won’t break the bank.

Making the holidays memorable

While calculating a gift budget is one way to take the stress out of how much to spend on gifts, there other ways.

Many families give gifts to only the children. That keeps the cost down while making the children feel special.

Other families pick names out of a hat, with each person giving a gift only to the person whose name they receive. Others exchange secret Santa gifts. And other skip gifts entirely, focusing attention on togetherness.

Whether you exchange gifts or follow different family traditions, it doesn’t take very much money to make the winter holidays memorable.

This article by Jay L. Zagorsky of Boston University is republished from The Conversation under a Creative Commons license. 

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