November 7, 2016 – By Christopher Elliott
Ask Richard Brigleb about gift cards, and he’ll tell you about the $200 worth of plastic for a wine store and local restaurant he just found in his kitchen drawer.
“I had totally forgotten about it,” says Brigleb, a retired dentist from Fairfax, Va.
But ask him if he’ll buy gift cards for friends and family this holiday season, and he offers a shrug.
“Gift cards are a great idea,” he says. “But why not just write a check?”
Good question. The gift card industry is expected to account for $140 billion in spending this year, or about 14 percent of gift giving, according to a Fung Business survey. New research by the Retail Gift Card Association (RGCA), a trade group for the industry representing closed-loop gift cards — scrip that can only be used at a single business — suggests consumer demand for gift cards is rising this holiday season. It found 76 percent of U.S. shoppers plan to buy plastic gift cards this year, up from 70 percent in 2014 and 73 percent last year.
“Gift cards are consistently a favorite choice in the U.S.,” says Timm Walsh, RGCA’s board chairman. “Americans love to give them and receive them.”
But should they give and receive them?
Maybe, maybe not.
There are, of course, several benefits to gift cards. They include:
They’re easy. A gift card is convenient, particularly for the folks in your life who you don’t know personally, like teachers, babysitters or newspaper carriers “You can save yourself a lot of guesswork by getting gift cards,” says Cathy DeWitt Dunn, a financial professional from the Dallas firm of DeWitt & Dunn.
They can help you save money. Companies are pushing gift cards aggressively, so they may offer discounts when you’re buying or redeeming them, says Michael Foguth, founder of Foguth Financial Group in Brighton, Mich. “Some large box stores will give you a percentage off your order if you throw in a gift card with a minimum set value,” he says.
Everyone wants one. They’re in high demand. Also, they offer a lot of flexibility and they don’t expire, thanks to federal law, says Kendal Perez, a savings expert at CouponSherpa.com. Plus, they can be re-gifted. “Receiving a gift card you don’t want is disappointing, but you can use that card to boost your holiday budget and re-gift it, or use it as currency to buy a gift for someone on your list,” she says.
Talk about a win-win, right?
Not so fast.
Gift cards have a few negatives, both obvious and not-so-obvious. You need to know about them before exchanging your money for scrip.
Gift cards are almost too easy, says relationship expert April Masini.
“Many people feel that they’re impersonal and cheating on the process of deciding on, shopping for and finding, wrapping and presenting the perfect present,” she says. “If you’re someone who makes their own jam, knits their own scarves and packages their own Christmas fudge in the kitchen before hand-delivering charming artisan presents, gift cards will reek of cheap ease.”
Gift cards have fees that may not be immediately disclosed. For example, Dennis Tucker, a librarian from Stockton, Calif., noticed a $2 “maintenance fee” on his American Express gift card recently. The company refunded the fees after I asked about them.
“Certain gift cards — mainly ones that act as prepaid credit cards — also have an activation fee associated with them,” warns Katie Ross, an education and development manager for the American Consumer Credit Counseling, an organization that offers information and guidance on issues such as identity theft, credit, debt and budgeting. “This makes the gift seem less valuable and can leave the recipient feeling annoyed.
Also, gift cards can get lost, and if they do, your money’s more or less gone. “Gift cards are forgotten and don’t get used,” says John Ruhlin, author of the book “Giftology: The Art and Science of Using Gifts to Cut Through the Noise, Increase Referrals, and Strengthen Retention.”
In fact, the “breakage” rate — an industry term for revenue gained by retailers through unredeemed, expired or lost gift cards — is off the charts. About $1 billion worth of gift cards aren’t redeemed every year, a fact companies know.
That’s why they love gift cards. It’s lost — and found — money.
Perhaps the most unpublicized gift card drawback is the rampant abuse, which happens on several levels. Not a week goes by that I don’t hear from someone who tried to use a gift card either purchased under questionable circumstances or who claimed a gift card credit was stolen, only to be resold under equally questionable circumstances.
Gift cards are favored by hackers as financial instruments used to collect troves of loyalty points in an unethical way or by thieves who just want to steal your money. Consider what happened to Chii Biao Fong, a software engineer from Milpitas, Calif., after some of his Target gift card credits were presumably stolen. Target would not restore them until I asked about the problem. Others are not so lucky and lose everything.
So how do the experts do it? If you don’t have a specific, thoughtful gift in mind for that special someone in your life this holiday season, maybe you should consider doing what grandma and grandpa used to do when you were younger, says Kyle O’Dell, a managing partner at O’Dell, Winkfield, Roseman & Shipp, a retirement planning firm in Denver.
“How about a good old fashioned check?” he asks. “We were never upset while growing up when our grandparents would give us cash or a check for our birthday. Hard cash or a check will get used almost all of the time.”
Indeed, a 2013 survey by St. Leo University found that a surprising 41 percent of respondents would prefer to receive cash instead of a gift card.
Maybe there’s a silent plurality who knows gift cards aren’t the amazing financial instruments so many experts claim they are.