Gift Cards: a Present or a Drain on Your Finances

by John Stevenson on February 2, 2012

Gift cards are considered a lazy gift by many: rather than taking the time to find the perfect gift for your loved ones, you just buy a gift card online, discounted one at that.

What if a gift card ranks high on your wish list? Some people like the idea of getting a gift card because it gives them control over what they can use the money for. However, author of What Investors Really Want and expert in behavioral finance Meir Statman notes that gift cards actually make people spend more than the amount they have received. If you get a gift card preloaded with $50, the chance is that you will spend more than this. Spending the exact amount is somehow difficult, and the brain decides that it is much easier to spend at least $50. Moreover, people make more frivolous purchases when using a gift card than when using gifts of cash.

Gift cards which act pretty much like cash, for example, the prepaid Visa cash card variety come with different issues. Customers can use such cards everywhere they shop with a regular credit card, but they can incur hefty fees. Thus, depending on where the gift card is purchased, it may come with high foreign exchange fees, an extra 2.5-percent charge, and a monthly maintenance fee. Some card issuers stipulate that if the gift card is not used before the expiry date, a closing fee equal to the remaining card balance is charged (the Globe and Mail).

Even when gift cards are not a drain on one’s finances, they are not the best idea for a present. Some people get a card they cannot use – you gave up drinking coffee and receive a coffee-shop card or you are a vegetarian but Aunt Polly (who always forgets this) gave you a steakhouse card). Even when a gift card is given as a present with the best intentions, it may not be a good fit for the lifestyle of the recipient. According to the Consumer Reports magazine, 1 out of 4 gift cards given as a present remains unused for over a year, and many gift cards are ultimately discarded or lost. The average household in Canada has more than $300 in gift cards, which are lying around unused. These wasted gift cards amount to $1 billion, which is spent to be thrown away every year (Card Swap).

What to do with unwanted gift cards? You can sell them, give them as a present to someone who is likely to take advantage, or donate them. One option is to get the cash back. Websites such as Card Pool, Cardwoo, and Plastic Jungle take gift cards for a small fee. Another option is to sell the gift card directly, offering it though Craiglist or eBay. A third option is to donate the card to your favorite charity. Many of them accept gift cards and use them to provide services and care. Thus, your donation will stay within the community (Technorati).

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