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By Alpha Research
Feb 13, 2023
Come February, and love is all around. It started with one day – February 14, celebrated as Valentine’s Day, and now an entire week dedicated to love.
The exchange of cards, flowers, and gifts between loved ones is a way to show that they care about each other, making everyone happy. In the process, the memories created together are priceless.
That said, how would you feel if I were to tell you that gift-giving results in a deadweight loss?
Deadweight loss of gifting refers to the reduction in economic welfare or surplus due to transferring goods or resources as gifts rather than through market transactions. It implies that the recipients valued the gifts less than someone paid for them, a concept proposed by Joel Waldfogel, an economics professor at Yale, then in a 1993 paper. He stated the estimated gift-giving loss is between $4 billion and $13 billion. The most conservative estimate suggests that the receiver valued the gift at 90 percent of the buying price.
Probably, it is this notion of the deadweight loss associated with gift-giving which gave rise to gift cards –a substitute for cash.
Before you make up your mind not to give gifts this valentine, let me highlight that the study focused on ill-chosen gifts. Economically speaking, gift-giving can be a waste of money if you don’t know someone well. But there are forces other than economics in this world. The respondents were happiest with gifts from friends and significant others who have a good idea of what they like. Gifts serve many functions, such as signaling regard and demonstrating social ties with the recipient.
So, maybe this can be a year for you to do something different. Starting this year, use the celebration of love as an opportunity to give a gift that will provide value for years to come and strengthen your relationship.
Investing in your loved ones can be a way to show your care and support for their long-term financial well-being. Unlike gifts, investments have the potential to appreciate over time and can support your future financial goals as a couple. Additionally, investing can also be a way to demonstrate your commitment to your partner and your shared financial future.
Here are a few reasons why investing might be a better option than giving gifts:
Of course, everyone’s situation is different, and It’s essential to consider your own financial goals and your loved one’s financial needs and preferences before making any investment decisions.
Do remember, getting your finances in order involves more than just investments. It includes risk protection, often in the form of insurance; legal documents to ensure your plan is implemented as you intended; consideration for special needs family members; or financing education for grandchildren and others, among many more.
Love and financial decision-making are intertwined because financial decisions often impact a couple’s relationship and can even influence the relationship’s stability. Use a “yours, mine, and ours” approach based on the relationship. Shift more towards the “ours” bucket, developing a cohesive financial plan that best meets the needs of both parties.
I hope some of the below-mentioned suggestions form a part of the bouquet of gifts for your loved one.
Don’t forget to complement it with a nice home-cooked meal, a candlelit dinner, and chocolates will be the icing on the cake.
Remember, there are a million different ways to express love. Get creative with “gifts” this year!!
Give the gift of financial freedom and security – to celebrate your partner or yourself.
Happy Valentines Day!!
Best Regards
Dr. Tarunika Jain Agarwal Ph.D.
Alpha Research
