Gen Y’s Frugal Holiday Shopping Plans

Twenty-somethings plan to spend less, but their gifts might have more meaning.

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If you put 20-somethings on your holiday shopping list, be warned: You might not be getting much in return. One in three members of Gen Y plan to spend less on each person to stay within their budgets, according to the Western Union Payments Money Mindset Index. That younger generation reports being more budget-conscious than older groups, with an average allotment of just $245 for all their gifts. (Members of Gen X plan to spend almost $300 total.)

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A new survey from TD Ameritrade underscores the money-smart trend: 41 percent of 20-somethings are monitoring the markets and their investments more heavily than before the recession, compared to just 30 percent of older investors. The survey also found that one in three 20-somethings have put new money in the stock market, compared to just 14 percent of 30- and 40-somethings. The message? That Gen Y has learned from the recession and adjusted their behavior accordingly.

Those changes include acting more conservatively with their money. In fact, two-thirds of Gen Y investors surveyed by TD Ameritrade said they have already built an emergency fund and that they are on or ahead of schedule with their retirement savings. That’s pretty impressive, considering their relative youth.

That newfound thrift need not interfere with holiday celebrations, however. In fact, people have long expressed a desire to simplify gift-giving, even before the most recent recession. Since the mid-1990s, pollster John Zogby has found that the amount people say they want to spend on holiday gifts has been dropping significantly.

That's part of the shift toward what Zogby calls "spiritual secularism," which describes the one third of the population that says it can achieve the American dream through spiritual fulfillment rather than material success. These Americans rank their families, quality of work, and values such as responsibility and respect for elders as highly important. "Their quest isn't for bigger houses and more cars; it's an inner search, a quest for spiritual meaning," says Zogby.

At the same time, new research continues to affirm that people get much more pleasure out of experiences than expensive things. By comparing consumption data from the national Health and Retirement Study, Thomas DeLeire of the University of Wisconsin-Madison and Ariel Kalil of the University of Chicago found that spending money on leisure activities, which include vacations, movie theater tickets, and hobbies, improve happiness levels. (Happiness was measured by asking respondents to describe how they felt about their lives.) Expenditures on durable goods such as refrigerators, clothes, personal items, cars, and housing, on the other hand, did not have an effect on happiness.

[For more money-saving tips, visit the U.S. News Alpha Consumer blog.]

Spending on leisure activities appears to boost one’s level of social connectedness. That makes sense, since when you go on vacation, engage in a hobby such as tennis or bridge, or go out to the movies, you are almost always doing it with somebody else. So spending on leisure might boost your social connectedness, which in turn improves your happiness level.

Those findings suggest that gifts that allow you to spend more time with loved ones might be more valuable than electronics or toys. Tim Kasser, associate professor of psychology at Knox College and author of The High Price of Materialism, has found that people who opt for simplicity tend to be happier and more satisfied with their lives. His research on Christmas shows that those who focus more on family and religious experiences than on spending money and receiving gifts report being happier and less stressed than those who don't.

Other experiential gifts include favorite movies, museum memberships, cookbooks, and plane tickets for future family get-togethers. And there’s always the popular favorite of children and broke college students: The “love coupon,” which involves a promise to spend time with their parents or siblings. It’s one of the few free gifts that recipients are actually happy to receive.

Kimberly Palmer is the author of the new book Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.