The Economics of Christmas

A very interesting article on the Wall Street Journal explaining the economics of Christmas caught my eye. The article titled, "How Christmas Brings Out The Grinch in Economists", talks about how some economists say we would be better off without Christmas as its an inefficient mode of connecting consumers to what they buy by squeezing all the purchases in a year end buying frenzy. Moreover, people spend hundred of dollars on unwanted gifts that might just be put in a box and kept in the closet.

This phenomenon can be explained by the economics of a gift. Studies show that people always prefer $50 as opposed to a gift of an equivalent amount. Hence, its safer and makes more economic sense to give cash. But this practice lacks the sentimental aspect that is connected with a gift. This Christmas, consumers are expected to spend more than $457 billion, which is approximately $4000 per household.

According to a study by Professor Joel Waldfogel of the University of Pennsylvania, consumers would save at least 25% of their spending if they bought their gifts themselves. That is close to $10 billion. In fact, gift cards for Christmas alone amount to a whopping $25 billion. That's makes the Economics of Christmas worth more than $500 billion if you take the total cost into account.

Merry Christmas....