Why Giving Gift Cards Does More Harm Than Good

I admit that I have given gift cards to others because the recipients can choose what they want, and honestly, it saves so much time by not shopping around for gifts. But, if gift cards are the only gift option, it is a better idea not to give anything.

Many people think that the main reason retailers are selling gift cards is to sell more merchandise by attracting shoppers through the cards, but that is not true. Retailers are selling them to
1. up-sell, making gift card holders spend more than their cards are worth;
2. borrow money without paying any interest; (According to Bloomberg, the parent company of Black Angus had $15.2 million in outstanding gift cards and certificates when they filed for bankruptcy. Imagine how much interest they save by borrowing at 0%.)
3. make money from unredeemed gift cards through fees such as dormancy fees; (Fees cannot be imposed in the State of California.)
4. and to make money from expired gift cards. (There is no expiration date on gift cards sold in California.)
That is why retailers do not want consumers to buy anything in their stores if they are only buying things that are equal to the card balance.

Many gift cards are never redeemed because many of us give gift cards from stores where the recipients never shop. For example, I got an iTunes gift card from someone and never used it because I do not use an iPod. To be honest, I was unhappy and frustrated after I got it. (I am very sure many feel the same way.) Moreover many suspect that you re-gifted the cards because you could not use it.

Once the recipients decide to shop with gift cards, most of them want to redeem the full balance. So, what ends up happening is that they spend more than the card balance (Most people cannot resist those up-sells). And if the recipients are having financial problems like many Americans do, gift-givers are destroying recipients' financials by forcing them to spend more money.

Gift cards are generating so much profit for retailers that they are willing to sell them at grocery stores. How much money are they making? Think about it this way. Retailers probably give grocery stores about 10% of the total cards sales. Then, they hire gift card processors to manage and process the cards. And, of course, they charge retailers for their services. So, why are they selling the cards even when they are paying so much in fees? I went to a meeting for a retail franchisor, and its officers talked about how franchisees would make a lot of money by selling and accepting gift cards. No wonder most retailers are pushing their gift cards.

We have witnessed bankruptcy filings of many retailers. Gift cards are considered unsecured debts and if retailers go bankrupt, consumers will be lucky if they get half the card's balance. There are many uncertainties in our economy and I ask everyone to avoid buying gift cards from retailers that are financially struggling. There are many ways to find out whether a retailer is in trouble. First, check the stock quote of that retailer and if it is publicly traded. If the stock price is below $1 or in the $1 range, most likely, that retailer is in serious financial distress. Then, search the web. You will find financial information about many retailers even though there are some false rumors. So, my advice here is if you have gift cards from troubled retailers, go redeem them now before they are gone, and do not even bother to buy cards from them. Imagine you give someone a gift card and the balance is later gone.

Do not give anyone a gift card because it will hurt them!

Disclaimer: The information on this blog is general information only and may not apply to an individual's circumstances. Please consult a professional regarding your particular circumstances.