February 26th, 2007

ronin

Why gift cards suck.


It's an open secret in the financial industry that gift cards are a huge source of free money for banks, stores, and other institutions that issue them. The statistic is that about 20% of gift cards bought will never be used. People lose the cards, or forget about them until years after the expiration date has passed. The companies selling gift cards love this, of course - it means that the money that was spent to buy the gift card is theirs forever, and they don't have to give anyone anything at all in return. Also, there is considerable flexibility in how companies are allowed to count gift card sales in their profit statements, thus allowing them to play financial games with their earnings numbers. For these reasons and more, everyone and their mom sells gift cards these days.

Gift cards can also be a bad deal for consumers in some surprising and unexpected ways. Unlike giving cash or writing a check, when you give someone a gift card, they are suddenly under the thumb of whoever owns the gift card. I was recently given a gift card issued by a large credit card company, as a christmas present. I wanted to spend it at a place that would not accept this particular brand of credit card. I called the credit card company to ask if there was something I could do - get the money that the gift card purports to represent - and the answer was an absolute "no, you must spend the money only with merchants that WE choose, in ways that WE like." (And you can bet that they're skimming a percentage off the top of any purchase I make, at the expense of the merchant that I use the card at.)

It's an unhappy situation. Normally, giving someone a gift of money would give them wide-open options, making them more free, and saving them time since cash can be used anywhere. But when you give a gift card, what you're actually doing is imposing a constraint on the person you give it to. They must take extra time and effort to track down a merchant that will honor the gift card. And there's no guarantee that said merchant will have what it is that they want. Nor can the gift card be deposited into the bank and thus saved for another day. It's the wet dream of consumption-crazed America - money that can only be spent, never saved.

I have given gift cards as presents before, not understanding these facts because I had never been on the other side. Now that I understand the effects of gift cards on the recipient, in the future I will be giving people cash instead. Or, perhaps, if for some reason giving cash is just too gauche for my delicate little sensibilities, I'll get off my lazy butt and actually expend the time and effort necessary to find them something that they'll truly like and appreciate.