Beware the Siren Song of Gift Cards

On the surface, gift cards seem like a perfect gift for those that have everything. After all, you’re giving the recipient the ability to choose their own gift, so they’ll definitely get something they want. Right? Well… Maybe.

As attractive as that sounds, a surprisingly large fraction of gift cards go unused, so you might want to think twice before handing them out at Christmas. Indeed, according to a recent survey by the Consumer Reports National Research Center:

“27 percent of those who received gift cards during the 2006 holiday season had not used one or more of them nearly a year later… up from the previous year, when 19 percent of consumers had one or more unused gift cards. Over one-third of those respondents said they didn’t use the cards because they either forgot about them, lost them, or the cards had expired. But the most common reasons people gave for not spending their gift cards were that they didn’t have time to shop (58 percent) or couldn’t find anything to buy (35 percent).”

Interesting. I would’ve expected a much higher fraction to get lost or be forgotten. But there’s a lesson here… As flexible as you think that gift card is, many recipients apparently don’t agree. Nonetheless, the projections are for over $100 billion in gift card sales in 2008. That’s right… One. Hundred. Billion. Dollars.

Store vs. bank cards

If I were a betting man, I’d wager that the reason such a large fraction of cards goes unspent is because they’re tied to a specific store. It’s far less convenient to use a card if you have to visit a particular store. This also plays into the inability of the recipient to find something that they want to buy. If they had the flexibility to use the card anywhere they wanted, they’d undoubtedly find something to spend it on.

So why not go with a bank-banked gift card? These cards give the recipient the freedom to shop at any store that accepts Visa or MasterCard. Sounds great, but the issuing bank typically charges an upfront fee when they sell the card. And that’s not necessarily the end of the fees… Both store-issued and bank-issued gift cards often have inactivity fees and expiration dates.

Why not cash?

I’m not sure how the gift card industry managed to pull this off, but somewhere along the line it became far more acceptable to give a gift card than to give cash. Why is this? Cash is far more flexible and just as valuable (moreso, in fact). Yet most people are reticent to give cash. Perhaps it’s a fear of looking lazy and/or thoughtless. But the bottom line is this… When I give a gift, I want it to be useful to the recipient.

Do you think less of someone if they give you cash instead of a gift card? I sure don’t.

28 Responses to “Beware the Siren Song of Gift Cards”

  1. Anonymous

    I don’t regift gift cards because if they don’t work, there’s nothing I can do about it. (When I buy gift cards, I always keep the receipt; often I give the receipt with the card, in case there are any problems with it.)

    Even if I get gift cards to places I don’t normally shop, I have never been able not to find something. Yes, Best Buy is expensive, but they have small-ticket items that I still can use, so I buy those. I got $10 to Pier One once – I got a pair of mugs (that I have used quite a bit!).

    But I try to be a glass-half-full kind of person. I am more likely to get use from a gift card to a place I don’t normally shop than a generic gift (I don’t like lotions or most scented candles, and I have, in the past, gotten them by the ton).

  2. Anonymous

    Great ideas. The amazon trick was a godsend for me this Christmas! I must say, however – if you can’t trust someone with cash, don’t give them a gift card as an alternative. Forcing them to buy what you think they should buy is quite childish. Just get a nice gift of your own choosing and call it a day.

    If you really need to get it out of your system, go make disparaging comments on random message boards. 😉

  3. Anonymous

    @FrugalBabe: Maybe it’s because I hate to spend money and almost never shop anywhere expect[sic] thrift stores…

    Yes FrugalBabe, this is clearly the differentiating factor. Most people feel that money is a tool that can be used to achieve their goals and dreams and therefore serve to make them happy.

    Clearly, achieving these goals and dreams requires the spending of said money which you actually hate to do. I’m pretty sure that makes you quite different.

  4. Anonymous

    I am always amazed when I see how many people let gift cards expire and never use them. I cannot imagine doing this. If I get a gift card, it goes in my wallet right next to my credit card, and I usually use it within a couple weeks. Maybe it’s because I hate to spend money and almost never shop anywhere expect thrift stores, so a gift card lets me do some out-of-the-ordinary shopping.

  5. Anonymous

    And a question, does anyone know why stores can’t calculate gift card sales into their revenue?

    This is just a simple accounting issue. When someone gives you money and you give them “nothing” then you don’t have revenue, you have a liability. If I give you $30 of inventory and you give me $50 in cash, then I have $20 in profit and $50 in revenue. The inventory is come and gone and the cash leftover is profit, but basically we’ve made an exchange.

    If I buy a gift card, I’ve given you $20 and you’ve just given me an IOU (in the form of a gift card), but we haven’t made an exchange, somewhere down the line you’re legally going to owe something to holder of the gift card, so it’s actually a debt or a liability and therefore can’t be counted as revenue.

    As to all of the gift card vs. cash naysayers, here’s where I love gift cards: services & consumables. If you’re a Starbucks addict or you have a favorite salon or a favorite food joint, then I’ll happily get you a GC for that place. It’s also good for “known expenses”, if you’ve just moved and I know that you need dishes, then buying you a GC to homewares store will come in handy.

    Some posters have mentioned the use of GCs over cash to force a “purchase” which actually sounds sensible, if a little controlling.

    Of course, as evidenced by SC: it was a restaurant out of my budget, even with a gift card
    gift cards are not the panacea. In fact a badly chosen gift card is really no better than a badly chosen gift.

  6. Anonymous

    Once someone gave me a $50 gift card to use at a local restaurant (actually option of two restaurants). I didn’t know either restaurant. Because she’d helped me out I offered to take my sis out to dinner (thinking $50 bucks would cover two. Ha!) The first restaurant had a menu posted outside. The dishes were around $50 for an entree. I told her I couldn’t afford it so we went to the second “cheaper” restaurant where the entrees ran about $25 each. Well, because it was a reward dinner, she ordered an appetizer, side salad, her entree, and dessert. In the end my giftcard covered only half the meal for 2 people–and I ended up shelling out $60 bucks on my own. The food was delicious, though not very large portions, but it was a restaurant out of my budget, even with a gift card.

  7. Anonymous

    I just finished making a reply on the $800 in bonuses post – I’m definitely giving the gift cards I received for Christmas. I have a small family, but we’re in three different states and I *love* to buy gifts, but when I end up spending more in postage than I did on the gifts themselves just to get them to the recipients, gift cards become a very viable option.

    I sometimes save up my gift cards for when I want to go on a shopping spree and I’d recently been hoarding Home Depot gift cards (I used to get reward cards where I worked) to purchase a new refrigerator. Well, it turned out that having these cards hoarded came in handy when someone broke into my house a few weeks back and I needed a new front door – the refrigerator’s gone, but I didn’t have to shell out any cash for the door. (and no, I didn’t file a claim on my HO policy, the cost of doing that for a small claim ends up costing you more in the long run).

    So yes, for me and my family, holidays and birthdays have become an “exchange of the gift card” day – and it works for us.

  8. Anonymous

    I’m on the fence with the issue. Personally, I would rather receive cash. That said, it does somehow seem more thoughtful to give someone else a gift card, especially if that person is considered a social superior. For example, I would feel a bit weird giving my parents cash (especially since my mom would refuse to take it saying she has plenty of money 🙂 ), but giving a gift card for a nice evening or something seems to be a bit more thoughtful.

    I don’t see any reason why I should give my peers gift cards instead of cash though. The only time I have done this in the past is the case of one friend who’s spending habits I did not trust and I wished that he would spend it at a store where he could get something useful rather than pissing it away at this gaming store he often attended.

  9. Anonymous

    No problem here, I love cash as a gift! Or someone taking me out to eat for my birthday or other holiday.

    Was that just for stores or did that include restaurant gift cards as well? That’s what I usually give my parents and I know those always get spent!

  10. Anonymous

    I use eBay to purchase gift cards. You’ll have the option to buy from virtually any store and they’re usually at a 10-15% discount. Many sellers also offer free shipping.

    Also, if you’re looking to do some heavy duty shopping at Home Depot or Lowes, buy a gift card from eBay and save yourself some dough.

  11. Anonymous

    Really, I love getting cash, so no I don’t think less of people who give me cash, especially when I’m used to getting it from them. It feels like a tradition, in fact. (For example, my grandparents have always given me cash in the amount of my age for birthdays.)

    I like gift cards if they are from a place that I go regularly. But, it annoys me if someone asks what I’d like, and I say “gift card to ____” and instead they give a gift card to somewhere that I don’t go. To me that says “it wasn’t convenient for me to go get a gift card from that place you like, so I got this one instead.”

  12. Anonymous

    I don’t really get what’s wrong with using the gift money to pay bills. Once you have the money, then it all looks the same.

    I like gift cards for places that I like to shop in, but wouldn’t normally justify affording. And book tokens.

  13. Anonymous

    Paul – There is a trick to get around Amazon’s partial payment issue that I have used. Use the bank-backed gift card to send yourself an Amazon gift certificate via email. It arrives pretty much instantly. Then, use the Amazon gift certificate as a partial payment and use your regular credit card for the rest. You can even use up multiple bank-back cards by buying multiple Amazon gift certificates and applying them all!

  14. Anonymous

    I like to give & get gift cards. There are family & friends who will pay bills rather than use cash for a little something for themselves.
    By keeping track of each person’s faves, collections, etc & gift carding to suit we’re all happy.
    They do get wrapped & bow’d like any other gift, too 🙂

  15. Anonymous

    I agree that retailers have done a good job at convincing us that gift cards are preferable to cash. I don’t understand it either.

    My mother used to give me checks for my birthday but switched to gift cards because I would accept but then not cash her checks (she can’t really afford it and I felt guilty taking money from her).

    The only other good reason I’ve ever heard for giving a gift card instead of cash is if you think the recipient may not spend it wisely. My wife gives her brother gift cards to fast food restaurants instead of cash because she suspects (rightly) that he would spend the cash on booze or gambling.

    The only problem with one of the bank-backed gift cards you suggest (other than the upfront fee) is that many online retailers aren’t setup to accept partial payments from these cards. I recently had $15 left on one of these Visa debit cards and was going to buy a book at I had been wanting, but the book cost about $20 with shipping. Now, if I attempted this at a regular bookstore, they would probably have been able to split the transaction between my gift card and another credit card. But Amazon was unable to split the transaction between two cards, they just declined the gift card. So, I’m left with a gift card that has a balance on it but can’t use it to buy what I want.

    So what do you do when the balance on these cards get low? How do you use them when you don’t have enough left on the card to purchase what you want?

  16. Anonymous

    I only give gift cards if I know the person can use them. Store-specific gift cards, I believe, are more personal than cash or random ones. However, to make them a personal gift, it has to be a store you know the person either likes to go to, goes to often, or would like to visit.

  17. Anonymous

    Personally, I love receiving gift cards, mainly because the people who buy them for me know that I shop at that store.

    When I give gift cards, I almost always give store-specific ones. I went to buy an AmEx gift card from the supermarket one day for a family friend’s graduation, and they wanted to charge me $3.50 for the card!! I said forget it, and gave the kid $39.00 in cash instead of a $35 AmEx gift card that I have to pay extra for!

    And a question, does anyone know why stores can’t calculate gift card sales into their revenue? I was just reading an article the other day that it only counts as revenue when someone redeems it, and that’s why it’s bad for the economy in general when people don’t redeem gift cards. This seems silly, especially considering that the store has already received money for the “purchase.” Anyone have any insight into this?

  18. Anonymous

    As hard as I try to use all the gift cards I get…I am part of that 27%.

    Linen n’ things always have the “this item is $49 after a $30 rebate” sales. The rebate came in the form of gift cards to be spent at Linen n’ Things. I’ve had a rebate gift card for two years and still haven’t spent it.

    I called their 1-800 number and it doesn’t expire. At least that’s better than some gift cards I get, which do expire.

  19. Anonymous

    I think cash has always been an easier gift for Asian families than American ones. Maybe it’s because we give out red pocket (during Chinese new years) and doing this feels more familiar.

  20. Anonymous

    Gift cards have their place – my grandmother stopped giving my mother checks as gifts because she wanted my mother to buy something for herself, not pay bills (she once paid a speeding ticket with gift money).

    In my eyes, gift cards are GOOD when:
    1. the recipient likes shopping at a certain store, but normally can’t afford it (I rarely shop at LL Bean, except when I have a gift card)
    2. they allow a recipient to buy something they would buy anyway, but which is time-limited (I give one of my aunts a Starbucks card, which she’ll use to treat herself to frozen drinks in the summer) – this dovetails with #1
    3. they are for something very personal that the recipient wouldn’t think of getting themselves (one of our wedding gifts was a gift certificate for an online hammock store – we had never thought of getting a hammock, but it allowed us to pick out exactly the one we chose)

    Too often, we just default to giving a gift card because it’s easy and “seems” more thoughtful than just giving cash.

  21. Actually, Dylan had a great suggestion… Re-gift the gift cards. Our son recently received a $15 Best Buy gift card for his birthday. It’s tempting to give him $15 cash for it and then pass the card on to someone else on their birthday.

  22. Anonymous

    Cash certainly would be easiest. Or checks are nice.

    I don’t mind getting gift cards to my favorite sewing store, because I actually use them. But I’ve probably let other ones expire.

    We use the bank cards for groceries, actually, so that we get them used up quickly. Then we transfer money from the grocery budget to whatever we were planning to use the gift for–savings, new coat, etc.

Leave a Reply