Scroogenomics: Why You Shouldn't Buy Presents for the Holidays

Christmas is chaotic. All but the calmest and/or stingiest of us feel overwhelmed by never-ending shopping lists, particularly when we've left Christmas shopping to the very last minute. From October onwards we're battered by advertising and jingles encouraging us to spend, and Christmas shopping is less of a pleasure than a chore - even in comparison with birthday, wedding or anniversary shopping.

There is pleasure in searching for a special present when we can concentrate on what our recipients would really like; hopefully, this extra effort translates into a more appreciated present, too. But at Christmas time there is never enough time for such thoughtfulness.

In Scroogenomics, Joel Waldfogel compounds our seasonal frustrations with dismal economic analysis, explaining that really we are wasting our time and money. The conspicuous consumption that accompanies Christmas leads to excessive spending and otherwise avoidable debt.

According to Waldfogel, the net impact of the 2007 Christmas shopping frenzy in the US was an extra $66 billion (£40 billion) of spending, a third of which was a "deadweight loss" (wasted resources). The financial implications are severe, particularly for the poorest: the volume of "pay-day loans" (short-term loans secured against the borrower's next pay packet) triples in the US in January, and they can incur charges equivalent to annual interest of 7,300 per cent.

Waldfogel asserts that this wastage reflects the fact that people don't usually like their gifts very much. So Christmas shopping is a fruitless chore because the purchases we make are unlikely effectively to match our recipients' preferences: if they had the cash equivalent of our spending in their wallets, they would have bought something else.

Worse - even if we wanted to ensure that family and friends could get the best value from our money by giving them cash - social convention's "cash stigma" means that such offerings are rarely acceptable, except when the giver is an older, richer relative.

Hopefully, the wastage of resources that accompanies Christmas giving is not as large as Waldfogel claims. Perhaps most people enjoy their presents more than he allows. The giver may anticipate a pleasure that the recipient had not imagined: little pleasures on which we wouldn't allow ourselves to spend our own money are the pleasures that family and friends can indulge. Even unwanted presents can be recycled next year, reducing some wastage.

While Waldfogel briefly acknowledges some social and behavioural factors, he largely ignores many of the socio-psychological complexities surrounding Christmas giving. Gift-giving is governed by social customs; it fosters good relationships between people. It generates emotional responses - pride or guilt, depending on how accurately we judged recipients' preferences and/or whether or not their gifts to us were as inspired, and cost as much, as ours to them.

Gifts often have symbolic or sentimental value that is impossible to measure. A long-lost aunt may give me a jumper I wouldn't dream of wearing, but the emotional pleasure from the gesture, and the recognition that she values me enough to remember me at Christmas, gives me more satisfaction than a cash equivalent ever could - even if the gift is left mouldering at the back of my cupboard.

As a solution, Waldfogel recommends the great Christmas tradition of charity. He argues that we can give to worthy causes "through" the recipients of our presents - just as Warren Buffet gave $30 billion "through" Bill and Melinda Gates. But Buffet knew that the Gateses appreciate charity; I'm not so sure that my sister-in-law does. In essence, charity is a gift to yourself - you get the pleasure from your own altruism, but recipients disinclined to appreciate charity might well prefer a poorly judged gift to what is (for them) essentially no gift at all.

A more ingenious solution is "Keep the Change" gift cards: recipients can spend the money in the card, but if it is unspent after a certain period, for example a year, then the residual balance goes to charity. The stigma of gift cards is lessened by the fact that they incorporate a reputable charitable gesture. No one loses: recipients can buy what they want while indulging the luxurious pleasure of charitable giving, and should they decide not to use the whole sum (or just forget about it), the remainder goes to charity.

Although it is heavy with statistics, this is nonetheless an interesting and provocative book. Ironically, it would make a great little stocking-filler and could probably inspire some heated Christmas Day debates. Either way, Waldfogel is unlikely to be regretting the flurry of Christmas spending on Scroogenomics - even if its recipients aren't happy to receive it.