Gift cards are a bad present. They’re also the most asked-for gift in America.
This is a paradox that hangs on two wonky pegs: Western squeamishness when it comes to gifting cash, and our tendency to leave buying presents until the last minute. But it’s not without consequence. The problem with gift cards is that a vast proportion of the value that’s given is never spent by recipients because they forget to use them, lose them, or because the cards go out of date. Billions of dollars every year disappears thus into the coffers of massive companies.
Here’s the bottom line: We should get a grip, stop giving gift cards to each other, and give cold hard cash instead.
But I want a gift card!
No you don’t. What you want is the opportunity to buy things you actually desire. In fact, you probably don’t even want to have to buy them; you just accept that’s the deal to get a well-fitting skirt or pleasant cologne. Gift cards are worse than imperfect; they’re money-wasting, impersonal, and restrictive in ways we have learned to accept, but which aren’t truly helpful and don’t make sense.
A gift card does three things to the recipient. It restricts what they can spend the money on; it restricts the places they can spend it; and it usually restricts how long they have to spend it. The first of these—the restriction on what types of item one can buy—can be helpful in some ways. It makes the money feel more akin to an object than to a fungible asset and, crucially, bestows the license for self-indulgence.
The second is less helpful. What if you want a sweater from Gap but your gift card is from Gucci? Even if it’s for a company whose products you love, there might not be anything in stock right now that you like.
The third, the use-by date, is truly egregious. How many of us have left gift cards in a drawer only to realize they’ve gone out of date? The answer is millions of us. Unspent gift card money, called “breakage,” amounts to about $1 billion a year in the US. That figure has come down because consumer law cracked down on some particularly bad vendor practice, like inactivity fees for cards that weren’t used enough. Between 2005 and 2016, an estimated $45 billion was simply wasted on gift cards that were never redeemed, according to customer group Finder.
UK-consumer rights group Which? surveyed a number of retailers in 2017 to find out how quickly their gift cards ran out, and why. The US has 5-year minimum expiration dates. The UK stores Which? surveyed mostly had 1-2 year expiration times, and some were shorter. None had a really compelling case for why the cards had to expire at all, and some stores didn’t set expiration dates.
Is breakage a cunning plan?
It might sound like companies want gift cards to go unredeemed, but the reality is slightly more complicated. When companies report their earnings, unredeemed gift cards have to be listed as a liability, Finder explains, since the customer could still turn up and ask for the goods. Companies also say that they want customers to spend the money, because on average they spend well over the value of the card, and because it increases “footfall,” digital or otherwise.
But companies also know that a fat whack of the total spent on gift cards won’t be redeemed. And so, after a time, they book it as profit.
Let’s use Amazon as an example. As of September 2018, its most recent filing, its liabilities for unredeemed gift cards were $1.7 billion:
Amazon’s cards don’t run out for 10 years, but the firm knows that it can book the profit before then because as time elapses it becomes incredibly unlikely that the holder of the card will ever spend the money. Amazon books profit after nine months, the expected customer redemption period, saying in its filings that the likelihood of a card’s redemption “becomes remote” two years after the date of issuance.
Embrace the wad-of-bills-stuffed-in-an-envelope approach
Our busy cultures often mean there’s a perceived lack of time to shop, make gifts, or think carefully about what a recipient might want. (Though for those interested in personalizing their presents, there are ways to do so for loved ones.) If time is short and choosing hard, a cash gift instead of a gift card would mean less money seeping away into unchecked pockets and forgotten filing systems.
But why is giving cash so difficult? The problem is both psychological and culturally specific.
Theodore Caplow, an American sociologist, made a much-cited study of gifting in a small middle-American town back in 1979, finding that giving money was acceptable so long as the giver was older than the recipient: 10% of gifts in Caplow’s study were money, but 94% of those were made by older people to younger ones. The findings still hold true: The gifting of money between peers is seen as somehow distasteful and embarrassing in the West. Gift cards are a socially acceptable alternative.
That’s not the case in many countries. In India, my colleague Akshat Rathi confirms, there is “no taboo” around giving family members or peers money on occasions ranging from birthdays, to weddings, to Diwali. Indians also give gold, an always-valuable asset that’s prettier than a gift card and doesn’t expire (though in a world of scarce natural resources we wouldn’t advise the gifting of gold as a particularly great option.)
And of course, with the upswell in use of digital money transfer systems like Venmo in the US and Monzo in the UK the transfer could be more seamless, and perhaps more seemly, than the mafia-esque roll of bills. We’re living in the end times of cash, after all.
The etiquette of gift cards
Not convinced? Ok. As a determined giver of gift-cards and recipient of them, there are still things you can do to staunch the financial bleeding.
If you plan to buy a gift card, check the expiry dates of the vendor, choosing one with a long time period, and without penalties for gaps in usage. Flag any conditions to your recipient when you give the gift, and keep the sales receipt. Consider whether a gift card is open-loop, meaning it can be spent at any retailer that accepts particular credit cards, or closed-loop, meaning that it can only be spent at certain shops. You might also want to get a digital card, which is harder to lose than a physical one.
What if you’ve lost your card, or it’s expired? One route is to contact the person who gave you the card, because they as the purchaser have more rights than the recipient. Any reinstatement of unspent money is at a firm’s discretion. Contacting the company that issued the card can also work, though they have no obligation to honor one that’s been lost or has expired. Finally, some firms have hacks for expiry dates: John Lewis, a chain of high-end UK department stores, resets the clock on a gift card for an extra two years if you log on to check a card’s balance.
Lots of people like to receive gift cards: Almost 60% of Americans surveyed in 2015 said they would prefer one to any other present. If cash were offered instead, it seems unlikely they’d turn it down. The transaction might feel unusual and even uncomfortable; but it would be win for the recipients of gifts, rather than giant firms.