The Gift Card Economy

Dubner and Levitt (of Freakonomics fame) have written an interesting column in the NYT concerning gift cards and other items that are purchased and go unused (gym memberships, prescription drugs.) They talk about some of the things we mention on this site…including gift card breakage (the term for the $16 million dollars in unused gift card cash Best Buy got to keep last year.) They also include some helpful advice:

    Next year, if you need a gift for a strict rationalist, consider cash. If you want to appeal to someone’s wild self, you’ll have to use your imagination. And if you’re hoping to send a little something extra to the shareholders of Best Buy or the Gap or Tiffany, consider a gift card.

And get a month-to-month gym membership. —MEGHANN MARCO

The Gift-Card Economy[New York Times via Freakonomics Blog]

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  1. aixwiz says:

    If you do want to by a gift card for someone, might I suggest getting a generic VISA or Mastercard gift card? I did that for several of my coworkers for Christmas and they loved it. The comment I heard most often is that they are glad that they could use it anywhere and not just one store.

  2. I wrote a post about this a while back and why I hate gift cards… they’re such a scam. This is the reason why I love the Chinese tradition of giving cash in little red envelopes because cash doesn’t have hidden fees and expiration dates.

  3. acambras says:

    @aixwiz
    If I understand correctly, the generic VISA/MC gift cards can have lots of nasty little fees, expiration dates, etc.

  4. phrygian says:

    Eh — I’ll still take the gift cards over many of the “gifts of questionable” taste that some family members insist on giving me — would anyone like a sweatshirt with leather fringe on it?

    Realistically, an unused gift card is no different than an unused item — the store still gets the money and the gift still goes to waste. At least if I receive an unwanted gift card, I can donate it to a non-profit org and not feel like I’m burdening them with ugly Christmas sweaters or bizarre tchotchkes.

  5. Johann says:

    “Breakage” is a good term for it. When I moved into my house, I was given a gift card for a nursery so I could buy a tree or bush for my yard. I left the card in my wallet for several months (which was obviously a mistake) and I later discovered that the card had quite literally broken in two and the half with the magnetic strip was missing. The bottom half of the card had no identifying information on it at all.

  6. Target even has cool gift cards! [the pic for this post]

  7. Jesse in Japan says:

    I’ve never understood the draw of gift cards. I mean, you can only use them at one store, they expire, and you don’t even get some kind of bonus points for using them. Not only that, but stores will often charge sales tax on the gift certificate itself and then on each item debited to the gift certificate. With cash you can use it anywhere, it never expires, and although there aren’t any bonus points, you also only have to pay tax once. Unless there’s some boutique store that you really like and want your friends and relatives to try, there’s just no reason to give a gift card when cash will do.

  8. acambras says:

    Jesse — here’s why I sometimes get gift cards for people: it shows you actually made SOME effort at gift-buying, as in “I wasn’t sure what to get you, but I know how much you love music and books — here’s an Amazon GC.” Or “I wish I could have afforded that really expensive gift that was on your registry at ___. Here’s a gift card you can put toward it.

    Also:
    – Nobody should be charging you sales tax to buy a gift certificate. The tax is assessed on the purchases in that recipient’s state (just like it would be if you gave the recipient cash).
    – Although laws in my state (CT) prohibit expiration dates on store gift cards, I wouldn’t buy a gift card from a store that tried to impose expiration dates, extra fees, etc.

  9. phrygian says:

    it shows you actually made SOME effort at gift-buying
    Exactly! They’re perfect for gift registries that you can’t afford anything on. Or, of you have to travel by air and don’t want to go through the fuss of getting a package through security. Or, if like me, you know someone is planning on making a large purchase anyway (for wallpaper and paint at Lowe’s) and you want to give directly towards that aim.

    Cash is always nice, but I usually end up paying bills with it. Sometimes, people want to make sure you splurge on yourself with their gift.

  10. couscousz says:

    actually there are now ways to make a little money off of gift cards you dont want. some sites like SwapaGiftCard.com let you sell, buy and trade gift cards. but there is a fee to list your card.

    or if you take a different road, a very generous road, you can donate the cards at no cost at all at DonateAGiftCard.com

    just a couple options not enough people know about.