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What's the Perfect Gift?

The best gifts are items that you wouldn’t normally buy for yourself.

Key points

  • People typically experience guilt when making a purchase; this is called moral tax or pain of payment.
  • Moral tax balances the enjoyment from newly purchased items and prevents people from overspending.
  • The best gifts are those that reduce moral tax and help people enjoy a purchase without feeling guilty.
Mix_and_Match Studio_Shutterstock
Source: Mix_and_Match Studio_Shutterstock

We’ve all been there. That awkward moment after unwrapping an underwhelming if not outright hideous gift. Be it a frying pan from your romantic partner or an ill-suited jumper from a friend who really should know better. But truth be told, finding the perfect gift is tough. Not everybody is as easy to please as my 3-year-old, whose eyes light up for any toy sporting a Paw Patrol print.

As we approach the holiday season, the pressure of socially mandated gift-buying is a source of stress for many people. Gift cards may seem like an easy and convenient way out, but they can be a hassle to redeem and often trick recipients into spending more than they initially intended. How do you find the perfect present to go under the tree?

Moral tax of payments

Taking a look at the psychology of financial choices can help successful gift-giving. In addition to the economic loss of money, any purchase of goods or services comes with costs other than coin. People experience emotional pain—often in the form of guilt—when splashing out. This is called the moral tax or pain of payment.

Moral tax serves an evolutionary purpose. It balances the joy we gain from newly purchased items to avoid overspending. We can think of it as an emotional tool for self-regulation that helps us stay within our budget. The effects of moral tax can even be measured at a neurological level. Brain scans using fMRI technology show activation of brain areas associated with physical pain, when people look at prices of items they intend to purchase.

The strength of pain experienced depends on the specific circumstances of a payment. Specifically, it matters how closely purchase and payment are linked or coupled. One factor that affects coupling is the payment method. Economic experiments have shown that people are much more willing to make a payment if using a credit card as opposed to cash. This is because the moral tax decreases during credit card payments as the link between payment and purchase is less salient. Paying with a credit card avoids an immediate financial loss at the time of payment, thereby reducing negative feelings of guilt.

Another example is the use of pre-paid tokens such as casino chips. Purchasing casino chips is emotionally painful at the time of payment. However, with the purchase being made in advance, later use of chips at gaming tables becomes comparatively easy. Moral tax is lowered due to the tenuous coupling of payment and purchase. This means that consumers show little guilt or inhibition when parting with their plastic chips—even though the tokens represent real money.

Moral tax and gift-giving

Moral tax is the feeling of guilt we experience when spending money. We can reduce this guilt by de-coupling the enjoyment of a purchase from its payment as discussed in the examples above. However, the best way to reduce moral tax is by receiving a gift—an item you didn’t have to pay for at all!

As a result, the best gifts are items that normally evoke particularly high levels of moral tax. This may include luxury goods that appear overpriced and unjustified and therefore induce particularly bad feelings of guilt upon purchase. Examples might be extravagant jewelry, decadent chocolate truffles, special toiletries that are deemed a real treat, an unnecessary purchase, or “too good” for buying the item yourself.

Curiously, it’s not about the actual amount of money spent. What matters most are the emotions evoked by the gift (or the guilt taken away). Consider the following example as an illustration.

For weeks, Anne has had her eye on a pair of designer boots. They look incredibly stylish and go beautifully with her new winter coat. She’s got enough money to pay for the boots but doesn’t think the purchase is justified. After all, she already owns three other pairs of winter footwear. Still, Anne makes sure to mention the boots to her wife Alex, and come Christmas morning is overjoyed to unwrap a large box containing the boots. She is delighted with the gift even though Alex bought it from their joint bank account.

Looking at it from an economic point of view, Anne’s delight doesn’t make any sense. Since she shares a bank account with her wife, it doesn’t matter who buys the boots. The financial loss is the same either way. How can Anne be happy with Alex making a purchase she previously deemed unnecessary? Why, it all comes down to moral tax. By making the payment on Anne’s behalf, Alex cuts her wife’s pain of payment. Anne gets to enjoy her precious boots guilt-free.

The psychology of financial choices suggests that the best gifts are things that people really want but deny themselves to avoid feeling guilty. What are your partner’s secret wants and guilty pleasures? Unfortunately, that’s the one question you need to answer yourself.

More from Eva M. Krockow Ph.D.
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More from Eva M. Krockow Ph.D.
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