In Defense of Gift Cards

Today is Christmas, so it seemed appropriate to write a post about Christmas gifts, specifically giftcards. Giftcards are big business, but they've developed a bad reputation. Take this rant by Barry Ritholz, for example:
Nothing says “I am both thoughtless and inconveniencing” like a gift card. They let the recipient know that you couldn’t be bothered actually picking out a present, so here is a cash equivalent — only so much less convenient than the crisp paper kind of cash. And, you can only spend it in one place. How much do gift cards suck? Each year, $5 billion in gift cards go unclaimed, forgotten about or lost. That’s how much people value them — they throw away $5 effen billion dollars worth every year! They are an expensive and inefficient way to say “I feel obligated to get you something, but don’t know what.”
In some cases, Ritholz is right. If someone gave me a giftcard to a business where I had zero interest in being a customer, I might put the card in a drawer and forget about it. But that's only a problem if the gift-giver is really bad at giving giftcards; and if they are, they are probably really bad at picking out a 'normal' gifts too. Typically, giftcard givers have at least some idea of the stores I like.

(from flickr user yum9me)

The supposedly 'more efficient' alternative, giving cash or a Visa/Mastercard/AmEx giftgard, is definitely a worse option; here's why: if someone gives me cash for Christmas, I might spend it on something fun for myself, or I might spend it on something really lame, like rent or textbooks. If someone gets me a giftcard to Chipotle, one of my favorite restaurants, I'd be pretty happy. With the Chipotle giftcard, I have an extra incentive to go since my burrito is already paid for. If I didn't have the giftcard, I might opt for a cheaper restaurant I enjoy less or eat macaroni-and-cheese at home, since my own cash would be on the line.

Giftcards give a little 'nudge' to do things I enjoy but might otherwise feel guilty about spending my own money on. In economics-speak, giftcards eliminate the opportunity cost of life's little pleasures. Since I can't spend my Chipotle-money on rent or textbooks, there's really no harm in going and scarfing down a burrito. That's what makes it a good gift, it's something I can treat myself too, even if I otherwise wouldn't have because the opportunity cost was a little too high.


    On December 27, 2009 JEFF9K on Twitter said...

    Good points. An alternative is to give money and specify how you want it spent: "Buy something fun", "Spend it at a coffee shop", etc. It's a little bit more versatile.