Why Gift Cards May Suck and Why They Don’t!

For decades now, gift cards have become a “basic” for most of us as just another way to shop and give as gifts to our family and friends. I can remember my days as an executive with the Macy Corporation when they became first an idea and then ultimately a real money maker for the company. That was then and the profit motive was in my brain and blood. But when it comes to the reality of gift cards, are there cons to them? I mean, for you, do they actually suck?

Hand holding gift card representing why gift cards may suck

Remember Gift Certificates? (Yes, They Still Exist)

I once had to make a presentation to the Board of Directors about expanding the sale of gift certificates at the chain of department stores I worked for back in (as Adam F. Goldberg would say) 1970-something.

Gift certificates, those pieces of fancy paper that were used like money in the stores, were pretty popular, but never as popular as they were during the holidays. The only trouble for the customers was that they had to search them out at the customer service desk and then wait in line to buy them, usually as gifts for someone else. No discounts, no small convenient plastic card, no online purchases (they didn’t exist of course) and really, no convenience. Just a big piece of paper and a fancy envelope that brought in tons of cash for the store. Would they ever actually be used?

Today, almost all retailers offer consumers gift cards as a way to shop or give money to friends, both online and in their brick-and-mortar locations. And there are actually two types of gift cards, the physical and the digital (e-gift cards). Each comes with a wide range of features and benefits yes, but they also come with drawbacks for you. For the retailers, not so much…they actually love them!

What Do You Really Need to Know About Gift Cards?

If you’re interested in purchasing gift cards for others or for yourself, it helps to understand the rules (and there are plenty of them) and how they compare with other payment methods.

I don’t have to explain what cash and using a credit card means to you, we all know and we also know the dangers of using them when you lose control. But gift cards are a tad different. They are probably a gift and that means it was someone else’s money involved here (yippee!). Plus they have a defined limit of value so you just can’t overspend them and that is a good thing.

Physical vs. Digital Gift Cards

Gift cards can be physical, meaning a plastic card, or digital, like through your email. Digital gift cards are assigned a unique gift code number that you can use to redeem at online retailers when making purchases. That option has been growing and growing over the years, but the physical cards remain the most popular for the time being.

Research by CardCash says that physical gift cards are growing at an annual rate of 9% while digital gift cards are projected to grow at an annual rate of more than 26% by 2025.

Since the beginning of the pandemic, 32% of consumers either purchased a gift card online for the first time, or with greater frequency than previously. That makes sense when you are stuck inside your house and still have to shop.

You can even use an app and gift card on your phone for things like food and drink at many restaurants these days. That’s pretty convenient.

The global gift card market led by companies like Amazon and Walmart is projected to reach $584 billion by 2026. Some have even projected it to hit $1.8 trillion by 2030!

Why Are Consumers Purchasing So Many Gift Cards?

The reasons haven’t really changed with the exception of necessity during the pandemic.

The top reasons are:

  1. Gift cards allow the recipient to select their own gifts
  2. Gift cards are easy and fast to buy
  3. Recipients do not have to worry about returning a gift
  4. It is easier to mail a gift card than a gift
  5. Giving gift cards helps you stick to your gift-giving budget
  6. Gift cards can pay you rewards

Millennials and Gen Xers led the way with the highest likelihood to purchase gift cards and about two out of three of them say they are interested in receiving gift cards through social networks or messaging apps.

What Are the Cons of Buying Gift Cards?

It goes without saying, but there are reasons why stores and online retailers love gift cards and they may not be best for you.

First of all, and the number one con, is this: You buy the card now, the retailer gets your money, but it’s quite possible that the card may never, ever be used! Gift cards are easy to lose, forget about, or even have stolen.

Number two, and another reason that can make your gift card suck, is this one: Gift cards are almost always non-replaceable and they may also have expiration dates, possibly making them worthless if you delay.

That may mean that if you leave it in a drawer someplace and forget about it, it can lose all its value. Even if it doesn’t expire, many cards charge inactivity fees and after some time that can also make them less valuable or even worth $0.

I myself—believe it or not—once received a gift card that I just forgot about and rediscovered it a few years later. By being so careless about it, I lost about half its value. I just told you something that I never admitted to anyone except the customer service person at Kohl’s, so please keep that a secret due to my embarrassment. I’m smarter now.

Number three? Gift cards appear to be very impersonal.

I may have suggested buying them to others over the years, but realistically that was because it is a time saver and helps you stick to a budget when gift giving. In reality, it’s an almost heartless type of gift that doesn’t show a great deal of thought. I have also learned that a well thought out gift, even a homemade one, means way more to someone than a gift card.

But Wait, There’s More…

Now for reason four and the most dreadful reason that gift cards can actually suck! Retailers may go out of business before a card is used and you are totally stuck! This doesn’t need much of an explanation. Just ask those that had cards from any of these stores: Borders, Pier 1 Imports (now online only, doesn’t accept gift cards from the stores), Sports Authority, Payless Shoes, or Toys R Us, just to name a few.

You can also add these cons to the list. After purchases are made with a gift card, there may be a small amount of money left which if not used, possibly due to forgetfulness, ends up as money wasted. Ever see a message like this one? I have.

“The available balance for your card through Jun 12th 2022 is: Card # 54xxxxxxxxxx3457 — $0.46. This balance may not include pending transactions. Sign In to view your card activity.”

In some states, state law allows you to redeem used gift cards under a certain dollar amount for cash at the store. For example, if there is $5 or less left on your gift card, you can generally redeem it for cash value here in New Jersey. Your state’s laws may vary.

Finally, if you decide to keep using a card, you may have to pay purchase or reload fees to add money to it. And thus starts the cycle all over again.

Buying and Selling Used Cards

If you’re looking for a bargain, there are sites where you can buy and sell used gift cards. The pro here is the discount, the con is that these transactions always come with risk, particularly if the site you are using goes defunct. Be sure to do your homework on third-party sites, and read their policies so you know what rights you have if the transaction is not as expected.

Final Thoughts

Look, gift cards are not evil. Like anything you do, if you pay attention to detail and have a reason to buy them, they can help you and your life. Gift cards do offer a number of advantages.

They can be a good substitute form of payment if you’d rather not carry around or use cash or a credit card.

In terms of gift giving, gift cards might be preferable if you have absolutely no idea what to buy for someone on your gift list. Better that then some bizarre gift they never would have ever selected, right?

You can also use gift cards to control your own spending when you shop.

You can even purchase gift cards for manufactured spending to earn rewards and bonuses on your credit cards.

Lastly, another important benefit is that you can use gift cards to help kids learn the basics of spending. You may want to research prepaid debit cards for kids and teens. They work similarly to a gift card and can have some real value as an educational tool. For sure, we need to educate our children about money.

What has your experience been like with gift cards? Have you felt good about them? Or are you guilty of burying some in the back of your underwear drawer and wasting that money? Do you like getting them? How do you feel about the fact that they may really suck sometimes when you don’t pay full attention to them?

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