In Defense of Cash for Christmas

Ask almost any economist what the perfect Christmas gift is, and he or she will tell you that the answer is cash. Your natural inclination at this point may be to balk – cash is so impersonal! You’d rather give a meaningful gift  – cash just sends the wrong message. I’d humbly like to suggest two reasons why you might choose cash instead – both deeply rooted in economic reasoning.

First, there’s an opportunity cost to finding the perfect gift for each and every person on your list. An opportunity cost is just the value of the next best alternative use of your time that you give up when you make a decision. Let’s say, for example, that you just spent five whole hours scouring the internet for the perfect gifts for your nieces and nephews. What else could you have been doing with that time? Maybe you would have been baking and decorating Christmas cookies with your friends or kids. The value you would have gained from baking Christmas cookies is the opportunity cost of your gift shopping time. 

Finding the perfect gift for everyone on your list is no easy task. Indeed, it might be impossible for some. The time and energy I devote to thinking through what to buy for my ever-growing list of giftees is substantial. The collective time everyone devotes to this endeavor is mind-blowing. Trade Offs abound in the form of things left undone because people are trying to find just the right thing for everyone on their list. 

This leads right into the second problem with gift-giving: deadweight loss. Deadweight loss is just the social cost of any market inefficiency. It might seem strange to think of gift giving in market terms, but bear with me for a second. 

We can think of people who give gifts as being suppliers of gifts, and those who receive gifts as being demanders. (Economists are fond of finding ways to put practically everything in supply and demand terms.) Now, let’s say you’re in the demand position, and Aunt Sarah kindly supplied you with a sweatshirt from Oklahoma University (her alma mater). You, however, are a graduate of the University of Texas at Austin – OU’s number one football rival. You might not value that sweatshirt at $0, but you probably don’t value it at $45 either – which is how much Aunt Sarah paid for the shirt. The difference between how much you value the sweatshirt and what Aunt Sarah paid for it is a deadweight loss. You both would have been better off had she just given you cash. 

One big caveat to the cash for Christmas argument is worth noting here. Social conventions probably preclude you from giving cash to everyone. It would, admittedly, be really weird to give your parents cash for Christmas. This doesn’t kill the argument, though. You can still prioritize finding the perfect gift for those people on your list to whom you should not give cash (parents, siblings, spouses, etc.), and give cash or cash-like gifts to others. Giving your kids’ teachers gift cards to Starbucks, for example, is easy for you and will definitely be appreciated by the teachers. 

This leads me to my final point. Cash doesn’t necessarily have to mean currency, and it doesn’t send the wrong message if you do it the right way. Notice I said “cash or cash-like gifts” above. Giving your 16-year-old nephew a gift card to the gas station is easy on your part, and also shows that you put a little thought into his gift. Or giving your niece an iTunes gift card and writing a note about an app you can download to play games together still shows that you aren’t being totally impersonal with your gift choice. You can absolutely give cash and still be a thoughtful gift giver!