by Mike Shea on 1 December 2007
Somehow in the past five or ten years, gift cards have become one of the more popular gifts in the country. Even though they work strictly to generate profit for a single company, people still insist that gift cards are a more reasonable gift than cash itself. Let's look deep down at the corporate corruption of these false gifts.
Gift cards cost as much as cash but are far less useful. People take real cash, cash that can earn interest and be used for just about anything anywhere in the country and turn it into an equally valued piece of plastic that never increases in value and can only be used at one store.
One out of five gift cards get lost. According to Consumer Reports, 19% of gift cards are never used. That equates to 4.7 billion dollars in lost money for consumers and pure profit to issuing companies.
While your gift card sits in your wallet, or someone else's wallet, the store is earning interest off of the value of the card. Let's say Best Buy earns a modest 5% interest on your $100 card in a year. If that card sits around for six months, the company earned $2.5 dollars while you earned nothing. Why should a company earn your interest when they give you something that is worse than cash?
No matter how a gift card is used, the company earns more than the value of the card. Who ever went into a Bed, Bath, and Beyond and spent exactly $50 from a gift card? You either spend $46 and have more money sitting on the card or you spend $58 on some towels and spend $8 more than you intended. Either way, the company makes out.
Gift card companies get free advertisement from you as long as you walk around with that card in your pocket. Every time you open your wallet you see a nice yellow "Best Buy" sitting there. It gets you to go into the store and spend money - usually more than you have on the card.
So how did gift cards get so popular? Somehow in our twisted sense of giving, we gave up on buying meaningful gifts for other people. Cash seems tacky for some reason, so instead we try to pretend to know what people would like at one store or another. "Mike likes gadgety crap, let's give him a Best Buy card."
It isn't any more personal to give a $50 gift card to a big chain than it is to just write me a check or give me a $50 bill. I can use the bill. I'll use it right away on something. I can use the bill on gas for my car but spend $50 on my credit card at Amazon and still get what I want.
Here are Mike's Hints to Avoid Gift Card Armageddon:
Don't ask for gift cards. Build an Amazon.com wish list instead. You'll get what you want and you won't spend any more or less than the cost of the gift.
Ask for cash. Make it clear that you'll love your friends and family more for receiving cash.
Explain the evils of gift cards to your friends and family well before the holidays so when they open up the envelope and a stack of $20s falls out, they know why.
Write a check and add a memo for something like "For a fun console game" or "for your Webkin collection" or "enjoy a good book". Make the memo the personal part of your check.
Gift cards are so diabolical that I can only imagine greedy fat suit-wearing bastards wringing their hands at the pure profit they will earn. Best Buy, for example, [Best Buy earned $43 million[(http://abcnews.go.com/Business/wireStory?id=2733206) in pure profit from unused gift cards.
Big companies make so much more than the value of every gift card they sell. They earn interest on the card as long as it isn't used. They earn pure profit from about 20% of the cards that are NEVER redeemed. They earn money every time someone spends more or less than the true value of the card. They even earn the advertisement of the owner carrying around a card with their name on it.
Give the gift of a real friend. Give cash.