Why I'm not a fan of gift cards

 OK. It's too late to reverse the flood of gift cards given in lieu of more sensible gifts for this Christmas.  On Wednesday, December 23 Suzanne Kapner, writing for The Wall Street Journal, reported on the huge increase in gift card purchases this season. 

"Gift-card purchases in the first week of December were twice the rate in the same period last year, according to InMarket, a data-analytics company. Gift card sales jumped 48% last weekend, compared with earlier in the week, as deadlines for free shipping with guaranteed Christmas delivery expired, according to Rise.ai, which manages electronic gift card programs for more than 5,000 brands, including Allbirds and Milk Bar."

Shoppers wanted to avoid crowded stores during the pandemic and the massive overload shouldered by the USPS, Fed-Ex and UPS that delayed deliveries.Ok, I get it but... somethings to think about the next time you are tempted to buy a gift card (clearly marked with a dollar amount): 

"The gift-card boom might not help holiday sales. Retailers can’t record the revenue until the cards are redeemed, according to Nathan Ehrlich, chairman of the Retail Gift Card Association."

Kapner explains: "There are two types of gift cards. So-called closed-loop cards are issued by banks and branded merchants including Macy’s or Amazon. They typically have no fees and don’t expire but can only be used at the retailer with its brand on the card..."

So "closed-loop" cards limit where the recipient can redeem the gift. 

"Open-loop cards operate on card networks such as those run by Mastercard Inc. and Visa Inc. These cards can be used anywhere those brands are accepted but typically hit recipients with fees." “If you don’t use the money, the fees will eat away at the balance.”

"A sizable portion of gift cards go unused, allowing merchants and card issuers to later book some of those funds as revenue under accounting rules. Mercator estimates merchants keep roughly $3.5 billion of unredeemed balances annually." That's BILLION with a B! So your money spent on gifts cards may just line the pocket of the retailer. 

Here's a better idea: Give old fashioned, never-go-out-of-style CASH! I doubt any of that gift will go unused. Consider that during this pandemic many people have lost income, jobs, and may be at risk of becoming homeless. Well... that's not MY relatives and friends. Don't be too sure! 

Especially for children, giving cash can help teach them to save some, donate to charity, and spend the rest on what they really want/need for themselves. 

Recently when I thought the $600 payments to all Americans (and their children) were assured (before Trump's threatened veto), I asked a teenage friend what she planned to do with her $600. She didn't miss a beat: "Give half to Planned Parenthood and put the other half in my college fund," was the prompt response!

Are you still paying for last year's holiday expenditures?

By charging expenditure to credit cards and failing to pay in full each month, many Americans are still paying for last year's holiday expenses (and perhaps for many prior years). But the good news is "According to an annual Consumer Reports survey, conducted during the first week in November,
7 percent of Americans still had unpaid Christmas bills left over from last year. That’s down from
10 percent in 2013 and 13 percent the year before." http://squaredawayblog.bc.edu/squared-away/fewer-still-paying-off-last-christmas/
The best way to ensure you pay in full this year is to pay cash. In fact, many gift recipients would much prefer needed cash rather than a gift that they may not need, may not fit, will be exchanged. Forget the gift cards and give cash. That way parents can teach children to save some, give some to charity, and spend some. Children need to be encouraged to save for their post-secondary education as well as more immediate wants. You can go wrong by encouraging children to give to the local food pantry.
IF you have some extra cash in your budget due to low gas prices, consider starting an IRA!

Gift Cards: What's New, What's Hot, What To Avoid

Listen (or read) about the latest in gift cards from National Public Radio (4 min. audio)
http://www.npr.org/2012/11/28/166054182/gift-cards-whats-new-whats-hot-what-to-avoid 
One important factor that's missing is that gift cards teach children that it's all about spending and shopping. It's not possible to save part of what you receive in a gift card. Holiday gifts of cash are one way that parents can teach children that they should save part of the money they receive and also donate a portion to the less fortunate. Parents who want to teach their children to save and to make donations should reconsider the message of gift cards. Consider stuffing the stocking or envelope with old fashioned cash or checks and following up with a lesson on thrift and charity. If kids don't learn this at home, where will they learn?
 

Ruminations on Gift Cards

After reading numerous articles about the pitfalls of gift cards and the estimated $1.9 billion (yes, that’s a b) that are never redeemed, I can't help but wonder why people don't just give cash (or even checks).

It is critical to teach children to save and you'll teach them the exact opposite message by giving a gift card. With cash (or equivalent) parents can encourage their children to save some and even set some money aside for donations. One lament I hear from women is how they wish their children would learn better financial behaviors. Think about what lessons you are teaching your children this holiday season (and I don’t mean just about gift cards).

Secondly, in today's economy many adults need money to pay the rent, mortgage, or utility bill, although it may not be obvious and they may be trying to hide their situation. I guess I'm conservative and old fashioned but I view gift cards as simply a very effective marketing strategy to encourage Americans to spend more than is prudent.

Why I Hate Gift Cards

OK. I know gift cards are THE hot gift item this year. They make it easy to give a gift without worrying if it will fit or be the right color. However, the problem is that, unlike cash, a gift card prevents the recipient from saving any of the gift. 

While gift cards are great for the retailers and the economy, they force the recipient to buy something when they might rather enjoy an experience like attending a performance (musical, symphony, ballet, etc.-- support the local performing arts). 

Psychological research confirms that we value experiences more than things (and gift cards are usually for retail stores or restaurants-- while dining out can be an experience, most of us don't need more calories). BUT, most of all, unlike a check or a few crisp bills, gift cards do not allow the recipient to save any of the gift or to donate to charity. 

This is of particular concern when the recipient is a child. A persistent theme through the focus group research I've conducted with women is the desire to teach their children better money management than what they learned. Teaching children the importance of saving and sharing (through donating to a charity that means something to them) should be part of the holiday season. 

With unemployment, underemployment and over-indebtedness plaguing so many families, some adults really could use the money to pay their bills rather than buy another sweater. 

For those who are determined to give gift cards (& for recipients), please check out the advice of the Federal Trade Commission: "FTC Has Gift Card Tips for Holiday Buying" http://www.ftc.gov/opa/2010/11/giftcards.shtm Be aware, that despite the new federal protections, gift cards can still expire, charge inactivity fees, and charge a fee to purchase the card! 

Whether you are the buyer or the recipient of a gift card, check out the FTC's tips. For example: "Avoid online auction sites, because the cards sold there may be counterfeit or may have been obtained fraudulently."

Happy Holidays, 
Jean 

FPW Survey thanks

Thanks to all who responded to the FPW survey!

FPW participant Catherine Sharpsteen was the grand prize winner of a free consultation with Suzanne Dalebout & Heather Shino of Polaris Financial Planning. Additional names were drawn to receive financial planning books. If you get an email please respond promptly with your book selection.

My grad student Sam Nelson and I are in the process of reviewing and analyzing the results to help plan future FPW programs.

I’m not a fan of gift cards because of the billions of $ lost by consumers each year to fees, unused cards, & lost cards, but mostly because the recipient cannot save any of your gift. If you gave cash or a check, you could encourage a child to a) save a % of the gift, b) give some to charity, & c) spend some on what they would really treasure. In today’s dismal economy many adults need help paying for rent, mortgage, utility, food, etc. You may not realize the extent of their financial distress because they are embarrassed to let anyone know. Another idea (especially for many Americans who have all that they really need) is to make part of your gift a donation to the recipient’s favorite charity, local food bank or animal shelter, or through The Alternative Gifts International: http://www.altgifts.org/. The December issue of Money magazine included an article about a Wharton School economist who studies gift giving. His research concludes that gifts are ‘economically inefficient” especially when we aren’t sure what the recipient really wants. 

Experience Utah, buy local first (help the local economy): http://www.localfirst.org/

Global Village Gifts, 146 North 100 East in Logan http://www.globalvillagegifts.org/ offers lovely fair traded items from around the world. 

Send a gift subscription to a personal finance magazine like Kiplinger’s, Money, or Consumer Reports.

More resources for simplifying the holidays and your life: Simple Living network: http://www.simpleliving.net/main/

Alternatives for Simple Living: http://www.simpleliving.org/

The Federal Reserve wants to help you use your credit cards wisely as you shop for the holidays. A new 45-second video Public Service Announcement includes 5 tips for getting the most from your credit cards by:

• paying on time each month
• staying below your card's credit limit
• avoiding unnecessary fees (such as late payment and over-the-limit fees)
• making more than the minimum payment and
• watching for changes in your card's interest rate and other terms.

For more information http://www.federalreserve.gov/consumerinfo/consumercredit.htm

You can view and link to the video at

http://www.federalreserveeducation.org/pfed/mediakit.cfm

Avoid the holiday hangover of credit card bills this year. Enjoy the holidays without all the shopping.

See you on January 13.

Cheers,

Jean