Gift Cards: Not Always the Easiest Holiday Present
Matthew Bandyk
If your Christmas stockings have been overflowing with gift cards in recent years, you're not alone. Deloitte's Annual Holiday Survey found that gift cards have been the most popular presents for six consecutive years, including 2009. Like most consumer goods, purchases of gift cards decreased last year, according to the National Retail Federation. But that change is related to the recession.
For busy Americans who don't have the time or inclination to find the perfect gift for each person on their shopping list, a gift card is the next best thing. "It's a close substitute for cash," says
But while it might be popular to buy gift cards, about 10 percent of the value on all those purchased gift cards goes unused by recipients. "We all have these drawers full of gift cards that never get used," Waldfogel says. Many states allow retailers to reclaim the value of unused gift cards after a couple of years. In his new book Scroogenomics, Waldfogel says that when shoppers buy gift cards, a good portion of the value might be going to the shareholders of large retailer chains because much of the unused value of the cards will go right back into the companies' coffers.
But even if shoppers remember to use their gift cards, there can still be problems. Cards issued by a financial institution--which can be used like cash at many different stores as opposed to just one--have recently come under scrutiny from regulators. The Federal Reserve issued new rules that apply to gift cards intended to "protect consumers from certain unexpected costs" such as hidden fees. But these regulations won't go into effect until 2010, so they won't help shoppers in the 2009 holiday season.
Millions of Americans will both give and receive gift cards this year--64 percent of all consumers, according to the Deloitte survey. Here's how to get the most out of these gifts.
Recognize deadlines. One result of the popularity of gift cards has been a move away from expiration dates on the part of the providers. In response to consumer demand, retailers have mostly phased out limits on how long recipients can use a gift card. "You'd be hard-pressed to find a branded national retailer that has an expiration date," says Sievers. On the other hand, bank gift cards typically have expiration dates. The new Federal Reserve regulations, however, would require all gift cards to be good for at least five years.
There is evidence that the shift away from expiration dates makes cards less likely to be used. New research suggests that the shorter the period until a card reaches its expiration date, the more likely you are to use a card for an enjoyable activity or experience, like eating at an expensive restaurant or going to an amusement park.
According to Shu, the reason the subjects procrastinated is that "people feel the need to save [the certificates up] for the right moment." But the longer the period they have to act, the more likely people are to wait for that right moment--until it's too late. A shorter deadline, on the other hand, motivated more people to act. "If you know you have a short period of time, you're going to fit in as much as you can," she says. If you have a card that does not expire, Shu predicts you will probably behave much like the people in the second group of her experiment: "A long period of time just increases the chance that they won't use [the cards]."
Shu says her research has implications for both givers and recipients of gift cards. If you're planning to buy gift cards for friends and family this year, cards for more mundane places like grocery stores might make a better gift than those for special occasions like a night out at a fancy restaurant. "The more run-of-the-mill cards are most likely to be used," says Shu. If you get a card without an expiration date this year, pencil your own deadline for when you think you should use the card, suggests Shu.
Pick the right card. The majority of gift cards issued by a single store don't have expiration dates, but that's not the case with bank gift cards. Not only do bank cards typically have expiration dates, but they can also come with fees, another feature that's not typical of store gift cards. For example, issuance fees are flat fees that kick in when you activate the card. More worrisome are dormancy fees, which can be a monthly charge that applies if you leave the card inactive for a certain period of time. Store gift cards also differ because retailers and banks have different incentives for issuing them. "Retailers do it to promote brands. The bank is purely interested in economics, and banks make money off fees," says Sievers. However, banks also provide an additional service--they work at any store that accepts the brand logo on the card, typically Visa,
The new Federal Reserve regulations will prohibit gift cards that carry fees for being dormant for at least one year. The regulations will also stipulate that fees must be made "clear and conspicuous" by the issuer.
Know your state laws. Many states have laws regarding escheat, the right of the state to take unclaimed property, in which the unredeemed value of an unexpired gift card goes to the state government after a certain period of time--typically between three and five years. Some states, such as
Rules on fees and expiration dates also widely vary from state to state. Many states have regulations that apply only to retailer gift cards.
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Gift Cards: Not Always the Easiest Holiday Present
(c) 2009 U.S. News & World Report