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Attention shoppers: Spending more on gifts won’t always wow the recipient

Forty-one per cent of respondents in a survey admitted they overspent on 2015 holiday gifts, blowing their budget by an average of $397.

Small Change is a series of stories that show how consumers can save money by making minor or incremental changes to their lifestyle.

For Amrita Singh, gift giving isn't about flashing a credit card and grabbing the latest expensive tech gadget, pricey cashmere sweater or overpriced thingamabob. Instead, it's about building a closer connection and, in some cases, even spending time together.

"It's about presence, not presents," says Ms. Singh, who writes the Pretty Frugal Living blog in Toronto. And if she can find a way to give thoughtful gifts without breaking the bank, so much the better.

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Ms. Singh's view on caring yet frugal gifting is what so many aspire to, but so rarely achieve. Royal Bank of Canada released findings this month from its 2016 postholiday spending poll. Forty-one per cent of respondents admitted they overspent on 2015 holiday gifts, blowing their budget by an average of $397.

Darren Dahl, a marketing professor with the Sauder School of Business at the University of British Columbia in Vancouver, isn't surprised we tend to overspend on gifts. We're our own worst enemies partly because our beliefs about what makes a perfect gift are often misguided. Even if we want to gift on the cheap, we don't actually want to look cheap in the process. From the parents who feel they have to spend exactly the same amount on their children's Christmas presents, to the clueless boyfriend who thinks a $500 watch will impress, people have long equated money with love.

"How much are you willing to sacrifice for the other person? What would you give up for them?" explains Dr. Dahl. "Well, resources are one thing you can give – and money is one of the fundamental resources."

Advertisers know this. Just consider the way the diamond industry pushes its product. Although a diamond is basically a hard piece of useless mineral, it's advertised as a proclamation of love, he says.

Kerry Taylor, the Toronto author of 397 Ways to Save Money and a blogger, cautions against thinking the gift receiver will appreciate the present more if you overspend. What's more, if you buy something that doesn't align with his or her values, it's wasted cash – and could even drive a wedge between you.

"If my husband were to buy me diamond earrings, I would be so pissed off! Like, why would you buy me that? This is our money you're spending," she says.

Fortunately, if you're able to cut through the psychological clutter, it's not difficult to make small changes to your gift giving habits that will ensure you're not wasting your money – and, in some cases, might even save some cash for the recipient, too. Here are three tips for becoming better at gifting than receiving.

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1. Hello. Do I know you?

A really good gift isn't necessarily a thing. Numerous studies over the years have shown that people tend to cherish experiences over items, and time spent together over something to consume alone.

"If you asked my wife what she would want for Valentine's Day, it would be time. That's a resource I don't have a lot of," admits Dr. Dahl. "But if I gave her more time, she'd be over the moon."

Ms. Singh adds that one of the reasons we get gifting so wrong comes down to being busy – too busy to really spend time with our friends and family and get to know what they like. But giving the gift of time isn't only free, it's fun. Offer to have a games night, cook together, explore an area of your city or take a road trip for two. This experiential gift also allows you to learn more about the person you're giving your time to, so it will be even easier finding the perfect gift next time.

2. Let's get practical

Sentimentality. According to a 2014 study in the Journal of Consumer Research, it rings the death knell for good gifting everywhere.

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It turns out that when we buy that expensive watch, flashy necklace or over-the-top kitchen appliance, we're envisaging the look of absolute delight on our loved one's face. It's all about capturing that moment – rather than how useful that gift is in the long run.

But the truth? According to the study, gifters might want to give the expensive coffee maker, but the recipient wants the one that's easiest to use.

Fortunately there are lots of practical gifts that can be used every day, the ultimate reminder that you care. Think a great vegetable peeler that makes quick work of a pile of potatoes for someone who has been struggling with a dull, subpar instrument for years (bonus points for offering to peel yourself). Or give gifts that actually save the person money: a French press coffee maker that helps them ditch their daily Starbucks habit; a snazzy, glass reusable water bottle; a programmable thermostat; or even a yearly subscription to a personal finance magazine.

3. Start a gift closet

According to the 2015 Bank of Montreal holiday spending report, nearly half of us make "panic purchases" because we worry we haven't bought enough for someone or haven't found the right gift earlier. But leaving shopping to the last minute often leads us to spend more than we otherwise would.

So be proactive, advises Ms. Singh, who says she believes in having a section of her cupboard dedicated to gifts she buys throughout the year, not just before holidays and birthdays. She stocks up on scented candles, or other items she knows people might like and use when she sees them deeply discounted. Just remember to only buy what you'll likely need.

"If you have these items already in place, it will help you curb the urge to make an impulse buy," she says. "You can save money."

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