There are three types of gifts: Things, Experiences, and Sentiments (obviously gifts can combine two of these types). The primary purpose of a gift is to signal that the giver paid some cost, in cash, time, or consideration, to give the gift. It's a signal of friendship or appreciation.There are 4 ways to spend money: 1) Spend your money on yourself: you care about price and value. 2) Spend other people's money on yourself: you care about value but not about price. 3) Spend your money on other people: you care about price, but not their value. 4) Spend other people's money on other people (government): you care about neither price nor value. Giving a gift implies you care about the price but not the benefit the person gets from the gift, as the price is the main signal. We've all received rotten gifts, and this scenario is serviceable but not optimal. The best gifts are valuable to the recipient, but this usually isn't the giver's primary concern.
Things: These are the cheapest gifts - the cheapest in terms of time and consideration. In my experience they're the least likely to be valuable to the recipient. A bad "thing" gift must be avoided at all costs - it costs the giver and has no value to the recipient, beyond the price signal.
The acceptability of cash or gift cards as gifts varies inversely with knowledge of the recipient's preferences and spending habits. If my best friend gave me $20 for my birthday, I'd be pretty disappointed, because he knows the sort of things I spend money on - the cash gift represents a lack of care. On the other hand, I would gladly take $20 from my grandpa because he's likely to buy something I would value less than $20. On a related note, here's a site showing the relation between gift cards and cash.
Experiences: Happiness research has shown that experiences tend to make people happier than things (the "high" from new things wears off rather quickly, and you have more clutter). It's hard to go wrong giving this gift, although it's usually most expensive type of gift.
Sentiment: These giftsare generally cheap but carry a high benefit to the recipient. Things like a photo album/framed photo, a hat or socks you knitted, or a long letter are excellent gifts with value for the recipient.
Unexpected gifts can be good gifts. I am thinking of gifts given with an eye at broadening the recipient's horizons (something they wouldn't buy for themselves, but you know the benefit). Examples are books given with an eye on exposing the recipient to a new way of seeing the world, or products that would save the recipient time or improve their life in some way. These are risky gifts but the potential benefit is large.
Unique gifts are better than replicable gifts. Few people give gasoline.
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