1. Gifts cards can only be used at one store.
A lot of people like giving gift cards as opposed to cash, because it’s more personal. Well, it may make the givers feel better about themselves, but it puts more pressure on the recipient. A gift card is basically cash with a ball and chain attached to it. Doesn’t sound so great anymore, does it?
The problem is that our needs and wants change throughout the year. Even if you get a gift card to someone’s favorite store, their priorities might be somewhere else at the moment. For example, I usually get at least one Best Buy gift card every year, and I enjoy getting new gadgets and toys. However, it’s not on the top of my list this year, because I’m getting ready to move halfway across the country for my new job. If I received cash, I would be able to use it to buy things I really need, like a bed or couches. With a Best Buy gift card, I’d just be tempted to spend money on something that I really don’t need right now, or I would put it away and potentially forget about it.
2. The store wins no matter what.
Does this situation sound familiar? You’ve got a $20 gift card, but what you want to get only costs $15. You don’t want to “waste” the remaining balance, but the only other thing you want brings your total up to $25. Great, this gift card just ended up costing you $5 out of your own pocket. What a wonderful gift!
There’s a reason stores promote gift cards. They win either way. If you leave a balance on the card, they already have the money, so it’s your loss, not theirs. If you don’t leave a balance, you usually end up going over and spending some of your own money that you wouldn’t have spent in the first place. Once again, your loss, not theirs. Win-win for the stores. Lose-lose for us.
3. You end up spending more at the store than you would without gift card.
Studies show that gift cards entice shoppers to spend more.
When people receive gift cards, they are likely to spend significantly more money, above and beyond the amount of funds on the card, as compared with those who receive the same amount as a cash gift.
However, people still prefer gift cards as opposed to cash, even if the cash gift is for a larger amount.
“People who I asked to report about an actual cash gift that they received reported gift amounts two times greater than the monetary amount reported by those who I asked about a gift card they received. However, cash gift recipients still rated their gift less positively and rated their use of the cash as less memorable compared with those who rated their gift card use.”
I find this fascinating and think that maybe this is part of the reason why our generation has so much debt. Psychologically speaking, gift cards make you feel better, but practically speaking, they make you spend more money. I’m going to call this The Paradox of the Gift Card.
The results of the research hold implications for people’s gift-purchasing decisions, White said. Gift cards may be more positively viewed and more memorably used on indulgent purchases than cash gifts.
She warned that if one’s intention in presenting a monetary gift to a friend or relative is to offer a bit of financial assistance, a gift card may paradoxically cause the recipient to actually end up spending more money instead of saving.
