A recent survey by the National Retail Federation found that 57% of us would like to receive a gift card this year. OK, but hands up if you’re also fine with receiving cash.
Last year we bought billions of dollars in gift cards in North America, and 95% of people bought at least one of them. But this year, we’re in a new economic reality and I want to make sure you’re really careful and think twice before buying them.
When you buy a gift card you’re paying the merchant real Canadian money. What you get in return is a piece of plastic or paper that’s nothing more than an I.O.U. That’s all it is, and you gotta hope they’re still in business when you, or the person you gave it to, want to use it.
When the retailer or restaurant goes bankrupt, your gift card is worthless. That’s a huge risk you’re taking. A year ago, who would every have predicted the Bombay Company would go bankrupt, or Circuit City, the parent company of Radio Shack, or Linens ‘N Things, to name just a few really big ones?
Sure, you’re safe with a bunch of retailers from Tim Horton to Wal Mart, but better safe than sorry. This year, give them some real Canadian cash. It doesn’t go bad, has no fees or expiry date and it’s not impersonal – merchants have marketed that and it isn’t true at all. It’s safe and the same thing as a piece of plastic. But the cash is good forever.
Last week I found a $20 bill in the glove box of my car. It was an emergency $20 and had been there for over a year. Because it’s been out of circulation a year, should I send this back to the Bank of Canada and get them to shred it? Are you nuts? Of course not!
Yet, that’s exactly what happens when almost every pre-paid credit card, also called stored-value cards, and gift cards, which don’t get used for a year. They’re either void, deduct a ton of inactivity fees each month, or simply wipe out the whole balance left.
When it comes to purchasing gift cards, the newest trend, and spreading very quickly, is buying gift cards at a discount. It was started by Costco where you can often purchase a $100 gift card for $80.
If you’ve got any store credit or some gift cards around – use them up. Besides, more than 20% of gift cards, or around $8 billion, are never used! That’s a huge amount of wasted money!
Banks love marketing pre-paid credit cards. They make the same fees and profits as they do on credit cards, but without any of the credit risks. Retailers love them, because they’ve got all your money up front, and you, or the recipient, have no choice but to deal with their business. Retailers also know that most people spend more in their stores than just the value of the gift card and they pay retail prices, without spending a lot of time looking for discounts!
In the coming weeks, millions of people will purchase gift cards and pre-paid credit cards for Christmas presents. But did cash somehow become a problem? Cash doesn’t have an expiry date, you won’t be charged an inactivity fee, and fifty bucks really is fifty bucks!