Preloved/Second hand here too, unless we can find an exceptionally good deal - eg we bought the Wii on a really cheap Amazon Black Friday deal (cheaper than getting second hand off Ebay), but my boys had had to wait years for it, the Wii U was already out by then and it was a Christmas gift for the whole family, rather than for any one person.
We pick up games for pence off Ebay or find them cheap on Amazon market place, as well as charity shops and car boots etc. Both boys also trade in old games for points at Game Exchange, and save their pocket money for any new ones they're desperate to have.
They also like to collect older consoles, so we have a PS1 that was given to us by someone that was just going to throw it out, with a massive variety of games that cost .99p each or similar and both boys have 'vintage' Gameboy Advances that they love sourcing games for - again for very little outlay.
They do both have a 3DS, but those were bought for birthdays and were a joint gift from the grandparents on both sides and ourselves, so no one person/couple had a massive outlay and the boys accepted that the console and one game was all they'd be getting.
There's no way we could ever have afforded brand new consoles and like you we wouldn't have been able to justify the cost to ourselves if we did. Fortunately my boys are very tech savy and both agree that new consoles are a rip off and it's better to wait until you can get one second hand.