Why You Should Stop and Think Before Buying Holiday Gift Cards

Photo by joingate / Shutterstock.com

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, Virginia.

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, the RGCA’s board chairman. “Americans love to give them and receive them.”

But should they give and receive them?

Maybe, maybe not.

What’s so great about gift cards?

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 whom 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, Michigan. “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.

It’s 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 New York City 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.”

Why retailers love gift cards

Gift cards have fees that may not be immediately disclosed. For example, Dennis Tucker, a librarian from Stockton, California, 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 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.

Thieves love them, too

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, California, after some of his Target gift card credits were presumably stolen. Target would not restore them until I asked about the loss. 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.

Christopher Elliott’s latest book is “How to Be the World’s Smartest Traveler” (National Geographic). You can get real-time answers to any consumer question on his new forum, elliott.org/forum, or by emailing him at [email protected]

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
If My Spouse Dies, Can I Get Her Social Security?
If My Spouse Dies, Can I Get Her Social Security?

If a spouse dies, will the survivor collect the other’s share in addition to his or her own?

6 Investing Tools That Help You Diversify
6 Investing Tools That Help You Diversify

Here’s how you can lend to startup businesses, fund social causes or get in on investments once available only to the very rich.

5 Cheap and Easy Ways to Make Your Car Smell Delightful
5 Cheap and Easy Ways to Make Your Car Smell Delightful

These tips will leave your ride smelling delightful for next to nothing. Some options are also chemical-free.

21 Purchases You Should Never Skimp On
21 Purchases You Should Never Skimp On

With some items, it makes sense to pay a little more rather than hopping on the lowest price.

12 Ways to Maximize Your Social Security Checks
12 Ways to Maximize Your Social Security Checks

You may be eligible for more retirement income than you realize.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

Social Security Checks Likely to Grow This Much in 2021
Social Security Checks Likely to Grow This Much in 2021

The federal government recently released a key statistic that gives clear insight into what next year’s COLA will be.

The Safest Grocery Store to Shop During the Coronavirus
The Safest Grocery Store to Shop During the Coronavirus

One grocery chain stands especially tall in its efforts to keep stores safe in the age of COVID-19.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

7 Hobbies That Help You Live Longer
7 Hobbies That Help You Live Longer

Research shows some hobbies can add years — or even decades — to your life.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less
5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less

In this week’s podcast: tips on retiring overseas — from someone who’s been helping American expats for decades.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.