Why Gift Cards May Suck and Why They Don’t!

For decades, gift cards have become a common way to shop and give as gifts to our family and friends. But when it comes to gift cards, are they a good way to spend your money? Are there downsides to purchasing them?

Remember Gift Certificates?

Gift certificates, those pieces of fancy paper used like money in the stores, sold well year-round but were never as popular as during the holidays. The only trouble for the customers was that they had to stand in line at the customer service desk to purchase them, usually as gifts for someone else. No discounts, no small convenient plastic card, no online purchases, and they just weren't convenient. Just a big piece of paper and a fancy envelope that brought in tons of cash for the store. But how often were they actually used?

Today, almost all retailers offer consumers gift cards as a way to shop or give money to friends, both online and in their brick-and-mortar locations. And there are two types of gift cards – physical and digital (e-gift cards).

Each includes a wide range of features and benefits, but they also have drawbacks for you, the consumer, not the retailer.

What You Need To Know About Gift Cards

If you're interested in purchasing gift cards for others or for yourself, it helps to understand the rules (and there are plenty of them) and how they compare with other payment methods.

You already know the financial dangers credit cards can present, but gift cards are a tad different. First, they are often received as gifts, meaning someone else's money is involved. Plus, they have a defined value, removing the possibility of overspending.

Physical vs. Digital Gift Cards

Gift cards can be physical, meaning a plastic card, or digital, often received through your email. Digital gift cards are assigned a unique gift code number that you can use to redeem at online retailers when making purchases. While digital gift cards have grown in popularity over the years, physical cards remain the more popular option.

Research by CardCash shows sales of physical gift cards are growing at an annual rate of 9%, while digital gift cards are projected to grow at a yearly rate of more than 26% by 2025.

In addition, the pandemic understandably boosted sales of digital gift cards, with 32% of consumers purchasing a gift card online for the first time or with greater frequency than previously.

You can even use an app and gift card on your phone for things like food and drink at many restaurants adding to the convenience factor.

The global gift card market led by companies like Amazon and Walmart is projected to reach $584 billion by 2026, with some even projecting it to hit $1.8 trillion by 2030.

Why Consumers Purchase so Many Gift Cards

The reasons haven't changed, except for necessity during the pandemic.

The top reasons are:

  1. Gift cards allow the recipient to select their own gifts
  2. Gift cards are easy and fast to buy
  3. Recipients do not have to deal with returning gifts
  4. It is easier to mail a gift card than a gift
  5. Giving gift cards helps you stick to your gift-giving budget
  6. Gift cards can pay you rewards

Millennials and Gen Xers led the way with the highest likelihood to purchase gift cards, with almost two out of three stating they are interested in receiving gift cards through social networks or messaging apps.

Cons of Buying Gift Cards

The biggest drawback to purchasing gift cards is that you buy the card now, and the retailer gets your money. Yet, it's quite possible the recipient never actually uses it, as gift cards are commonly lost, stolen, or forgotten about.

Another con is that gift cards are almost always non-replaceable, and some may also have expiration dates, possibly making them worthless after a specific time.

It can lose all its value if it's placed in a drawer someplace and forgotten about it. Even if it doesn't expire, many cards charge inactivity fees, making them less valuable.

Lastly, gift cards feel impersonal for many and show a lack of thought. Often, a well-thought-out gift, even a homemade one, means more to someone than a gift card.

Out of Luck

Perhaps the biggest con is that if a retailer goes out of business before a gift card is redeemed, you're simply out of luck. So people who had gift cards from any of these major retailers lost out: Borders, Pier 1 Imports (now online only, doesn't accept gift cards from the stores), Sports Authority, Payless Shoes, or Toys R Us, to name a few.

Lastly, once a customer purchases with a gift card, a small amount of money often remains and is wasted.

In some states, state law allows you to redeem used gift cards under a specific dollar amount for cash at the store. For example, if $5 or less is left on your gift card, you can generally redeem it for cash value in New Jersey.

Still, if you decide to keep using a card, you may have to pay purchase or reload fees to add money to it. And thus starts the cycle all over again.

Buying and Selling Used Cards

If you're looking for a bargain, there are sites where you can buy and sell used gift cards. The pro here is the discount; the con is that these transactions always come with risk, mainly if the site you are using goes defunct. So be sure to do your homework on third-party sites and understand their policies if a transaction differs from what is expected.

Final Thoughts

Gift cards do offer several advantages.

They can be a good substitute payment if you'd rather not carry around or use cash or a credit card.

In terms of gift giving, gift cards might be preferable if you have absolutely no idea what to buy for someone on your gift list.

You can also use gift cards to control your own spending when you shop. You can even purchase gift cards for manufactured spending to earn rewards and bonuses on your credit cards.

Lastly, another important benefit is using gift cards to help kids learn the basics of spending. Research prepaid debit cards for kids and teens. They work similarly to a gift card and can be valuable as an educational tool.

This article was produced and syndicated by Wealth of Geeks.