Gift Card Purchase Fees Are A Waste Of Money - We Need To Start Using Chinese Red Envelopes

Published 1/4/08 (Modified 3/8/11)
By MoneyBlueBook

Is it just me or is there something very wrong when you have to spend money to buy what is essentially the some denomination as money? Because that's basically what people are doing when they buy gift cards and are required to pay a purchase fee.

Personally, I have no problem with buying or giving gift cards as a presents. Gift cards are more flexible than the usual pre-chosen gift since the recipient theoretically has the option to determine how best to spend it. But therein lies the limitation and fallacy of the flexibility of gift cards. They're actually not as versatile and unrestricted as people may think they are. Since most gift cards are only good towards the particular store they were purchased for, they are limited to that one location.

Find the right credit card for you

0% Balance Transfer

Cash Back Credit Cards

0% Balance Transfer No Fee

Gift Cards Impose Limits and Purchase Fees

If I receive a Starbucks gift card for example, I am limited to using it at a Starbucks store, even if I prefer the coffee drinks served at the Caribou coffee shop next door. What if I'm not even a coffee drinker? Then what am I supposed to do with this extra card? End up selling it on eBay for a price less than face value like so many gift card holders end up doing? Truthfully, having the gift card actually limits my options.

One of the most frustrating aspects of gift cards is the upfront purchase expense required. If you want to buy a $25 gift card for your friend, think you're paying $25 for it? Think again! You'll likely be paying $25 along with an extra processing fee on top of that. Even with a universally accepted American Express gift card, you'll be required to pay a $3.95 charge just to purchase it, along with an extra $2.00 monthly fee that drains the card after the first 12 months.

Retailers Love Profiting From Gift Card Overspending and Lack Of Use

Retailers giggle like little school girls when customers buy gift cards. Since gift card sales are made at the point of purchase and not when they are actually redeemed for merchandise, retailers profit immediately from the card's face value and the purchase fees when the cards are bought. Retailers are well aware that recipients of gift cards frequently end up spending more than the value of the cards and that any remaining amount can be chalked up as extra profit.

Consumer statistics indicate that after one year, nearly 27% of gift card recipients haven't used their cards, with 7% of consumers never redeeming their cards. Common reasons why gift cards go unused include: not having the time to go out to use them, not finding anything worthy of purchasing, forgetting that you even had it (I'm guilty of this one), and losing the card and having it ultimately expire. My advice is, if you're going to give someone a gift card, you should also hand them the gift receipt for the card. While many retailers won't allow the gift card to be returned, at the very least they can replace it if it gets lost, damaged, or stolen. While many states now outlaw gift card expiration dates, not all consumers are protected from such diabolically hidden practices.

Best Solution - Adopt The Chinese Practice Of Giving Out Red Envelopes Stuffed With Cash

The most versatile gift is really just plain old cash, which gives you a perfect 1:1 exchange rate without the extra and unnecessary charges. The Chinese really have the concept of cash gifting all figured out and ingrained in their culture. For special events like birthdays, New Years, and graduations - red envelopes containing hard cash are offered as gifts. What a liberating gifting practice!

In Chinese culture, it's tradition for the older generation to give children and the younger folks red envelopes for special events as a sign of encouragement and love. For kids, getting cash is the best type of present to receive. Cash gifts can even be immediately deposited into high yield saving accounts, thereby serving another important teaching tool of the importance of saving for the future.

I wish we can adopt this type of stigma-free cash gifting in this country. With the diversification and permeation of different cultures, perhaps one day such a custom will be more universally accepted here.

This entry was posted on 1/4/08 (Modified on 3/8/11) and is filed under Frugal Living , Issues , Shopping . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response.

Disclaimer: Discover is a paid advertiser of this site.
Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.

Feed for this Entry

10 Responses to “Gift Card Purchase Fees Are A Waste Of Money - We Need To Start Using Chinese Red Envelopes”

Lily says:
January 4, 2008 at 8:59 am
I'm totally with you on this one. This year I couldn't bring any big items back from my parents' house since I was already pretty close to airline baggage limits. So my parents gave me cash (albeit in a white envelope), and that's the most helpful thing they could have done.

I think some people would not like the practice of giving cash, since even when you give gift cards, at least you put some thought into which store to get the card from. But I completely value the freedom of choice you offer people when you give them cash as gifts. They don't have to shop at one particular store, buy a certain thing to stay under the limit, or pay more money out of pocket in order to completely deplete the card.
Mrs. Micah says:
January 4, 2008 at 6:41 pm
I really like the red envelope idea! It makes the money special and yet flexible. I wonder if we can popularize it...

Do you know if they sell these envelopes in the Chinatown area? It just hit me that one might be able to acquire them locally. :)
Honest Dollar says:
January 4, 2008 at 10:14 pm
For the crafty, you could always make your own.
Raymond says:
January 5, 2008 at 3:07 am
Lily,
Red envelope cash gifts are the best!

Mrs. Micah,
Not sure where you live in the Maryland area, but there are Asian stores around here that probably sell the red envelopes - there's Maxim over in Rockville on Hungerford Drive. Maybe Chinatown in DC has it too - perhaps one of those 7-11 type stores (although DC's Chinatown is seriously being taken over by mainstream stores).
Urbanfrugal says:
January 16, 2008 at 5:02 pm
Giving cash definitely helps you stick to a spending plan. If you decide that you can only afford to give a person $10 then give them $10. (You can even make little envelopes out of old magazine pages, for a really unique touch)
SavingDiva says:
March 10, 2008 at 10:21 am
Sounds cute! Now, I just need to find cute envelopes (not necessarily red)....
mapgirl says:
March 11, 2008 at 9:27 am
Raymond, I have a hard time finding the envelopes, but I used to live in San Francisco and the local banks in Chinatown had red envelopes during Lunar New Year. I meant to check DC Chinatown for them this year, but notably, Bank of America (former HQ'd in SF) does not have a large branch in Chinatown in DC and that would have been my first destination.

I guess I'll have to see if I can find them some other way from some other place.

FWIW, Koreans also give cash for weddings, funerals, birthdays and new year. However, you do NOT give funeral money in a red envelope. Might want to check that. The money is used to defray funeral costs. Oh. Perhaps I should do a post about this?
Raymond says:
March 11, 2008 at 5:57 pm
Mapgirl,

I had no idea people gave money for funerals...I wonder if the counterpart to red envelopes for weddings and new year would be white envelopes for funerals since in many Asian cultures, white is associated with the passing of someone.
01 says:
May 1, 2008 at 4:21 am
Hi, you are very misinformed. If you have no use for the Starbucks card, you can call them and they will "refund" you the denomination with a check to your address.
01 says:
May 1, 2008 at 4:23 am
mapgirl, Japanese also give money for funeral and the envelopes are black or other dark colours.