Gift cards? Bah! Humbug!
By Peter Andrew
I had a deprived childhood. Most of my friends had at least one bachelor uncle or maiden aunt who'd turn up each Christmas, spectacularly fail to fit in with the family festivities, and make up for it by slipping one of the Bureau of Engraving and Printing's more sought-after banknotes into the greeting card he or she gave each child.
Moms and dads would later apologize to the children, pointing out that such childless kin knew nothing about kids, and thus lacked the knowledge to buy a proper gift. But, provided the bills weren't snatched by parents only to disappear into boring old savings accounts, all my friends loved getting cash, and I was deeply envious. Weep for the 8-year-old me.
How things have changed. Today, such relations may turn up with same-sex partners, and are often the life and soul of the party. Banknotes are much more rarely given (still not regarded as a thoughtful gift, apparently) and instead gift cards are the most common present.
And I mean that literally: Research from Accenture, a global consulting firm, found those cards the single most popular present on 2013's seasonal shopping lists, ahead of apparel, toys and electronics. Meanwhile, a National Retail Federation survey reports that more than 80 percent of shoppers plan to buy at least one for this year's holiday. The federation expects them each to spend on average $163.16 on such plastic, which comes out to a cool $29.8 billion across the nation.
Gaga for gift cards
Have we taken leave of our senses? In what possible way is a gift card a more thoughtful present than cash? They both achieve precisely the same thing: shifting the burden for selecting a token of our love or affection to the recipient. They both say the same things: either "I think you'd like buying what you actually want better than anything I can pick out," or "I can't be bothered deciding what you want, and then finding and buying it, so here's my lazy alternative." And they both get the same reactions: either "Wow! Now I can fulfill a minor dream -- thanks so much," or "Really?"
The difference is, cash is better. Here are six reasons why:
- Although the trend for "leakage" (when value on cards goes unredeemed) is currently downward, billions are still lost each year by recipients who fail to use their cards, either partly or in full. The Wall Street Journal once quoted an estimate of the leakage that occurred between 2005 and 2011: The figure was $41 billion.
- Store-branded gift cards can generally be redeemed only through certain retailers. Cash can be used anywhere.
- If you choose a general purpose (rather than store-branded) gift card, the recipient could face dormancy or maintenance fees if the full value is not redeemed within 12 months.
- Store-branded cards are a bit better in that respect. The Credit CARD Act stopped the worst excesses when it comes to their expiration dates and fees. However, you can still pay a premium to buy a gift card from some retailers. Just to be clear, you're paying them for the privilege of your giving them an interest-free loan: They get to use your money from the time you buy the card until it's redeemed. Talk about chutzpah.
- If it's not completely forgotten, there's a chance your present will end up being sold at a discount on a gift-card trading website, such as PlasticJungle. There it may be sold for perhaps 80-something percent of its face value, depending on the popularity of the card. Banknotes are always worth 100 cents on the dollar.
- It may be easy to buy a gift card at a checkout, but it's even easier to take cash out of your wallet or purse -- or, at worst, an ATM.
Of course, there are a couple of advantages to giving these cards. Cash can be gobbled up in day-to-day expenses and not used for a treat, while the plastic equivalent can, if you want, be spent only in certain stores. (Though those who are struggling financially probably value cash's flexibility.) And most -- though by no means all -- issuers of gift cards will usually replace the value left on a lost or stolen card. If cash disappears, it's gone forever.
Even so, I doubt the amount lost in holiday cash gifts ever got close to the billions that disappear in unredeemed card value.
Maybe I'm just being nostalgic for long-gone holidays when I was envious of my cash-rich pals. Or perhaps I'm missing something about gift cards that is obvious to everyone else. But I honestly have no idea why one sort of present that was light on thoughtfulness has so comprehensively been replaced by another -- especially as the new one's considerably worse in so many ways.
Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business, TheStreet and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.