Is it better to give someone cash or a gift card?

By Stephanie BankIllustration of Stephanie Bank

It’s that time of year when many of us have a long list of gifts to purchase (yay holiday season!) and a short list of great gift ideas (ugh shopping). We always try to be thoughtful and unique in our gift-giving but in some cases, and for some people, you just have to give up. That's when the thought process turns to a familiar dilemma: gift card or cash? Or, in a worst-case scenario, maybe you think about re-gifting that unopened scarf from your aunt.

We’re about to put an end to your psychological torment.

The secret to a really great gift? Popular answers include something they wouldn’t buy for themselves, something they can’t afford, or a handmade macaroni necklace. It's none of those things. The ideal gift removes the pain of paying — the negative feeling we often experience when making a purchase. We often feel the pain of paying when we buy something we "want" rather than something we "need," which triggers a sensation of guilt. We also get this feeling when the depletion of our resources (i.e. our cash) is visible rather than hidden or deferred (as it is with a credit card).

So here are the two ways you can be a truly great gift giver:

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Option A: Buy something they truly want. If you're at all close with this person, they’ve probably dropped hints loud and clear. They may have even emailed you an Amazon link. Think this is a gift-giving cop-out? It’s not! Most of us can relate to the pressure of wanting to buy a gift that is thoughtful and creative, but in reality people love getting things they’ve explicitly asked for. In 2011, a pair of psychologists named Francesca Gino and Francis J. Flynn conducted a series of studies at Stanford University demonstrating that recipients are more appreciative of gifts they requested than those they did not. They also found that gift givers, conversely, felt that unsolicited gifts (something we think they’d like but haven’t asked for) will be considered more thoughtful and considerate. So buy your friends and family something they've asked for. It will remove the pain of paying entirely and they'll get exactly what they want.

Option B: When that fails...go for the gift card. Those who believe nothing beats cold hard cash are wrong. A gift card wins every time. That seems counterintuitive because cash can be spent anywhere, but paying with cash invokes a high pain of paying. A 1998 paper published by Drazen Prelec and George Loewenstein at the Sloan School of Management at MIT examined the relationship between the pain of paying, consumption and enjoyment. They found that people experience greater enjoyment of a purchase when consumption and payment don’t happen at the same time. If you’ve ever been on an all-inclusive vacation you know exactly how good it feels to drink as many margaritas as you want without opening your wallet. They also found that people experience greater enjoyment when consumption doesn’t call to mind thoughts of payment. In other words, non-cash alternatives (such as a gift card at a retailer they like) eliminates any negative feelings they might experience. Even though it was a gift, cash will inevitably trigger some feelings of discomfort when they go to spend it. Get the gift card.

If you were waiting for an Option C that gives you permission to re-gift that present from your aunt, you won’t find it here. That's not going to make anyone look good. Pair a gift card with a nice note and rest assured the recipient will be plenty pleased. Happy shopping.

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