Need to Know: Gift Cards

Americans leave millions of dollars unused on gift cards every year. Mike Santoli, associate editor of Barron's Weekly, reveals what you should know about the digital gift certificate.

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ROBERT SMITH, host:

Today is, of course, the day after Christmas, and we're expecting to see shoppers pouring into the stores, not only with presents to exchange, but those little holiday cash gift cards.

As sort of a good news-bad news situation, the good news, according to the National Retail Federation, is that the growing gift card popularity means that the amount of returns we've seen in previous years will go down. The bad news is that there could be a lot of headaches associated with these gift cards.

STEWART: I told you my story about…

SMITH: Yeah.

STEWART: I had a gift card from - when I got married and I have one of them, and I lost it. And I hadn't registered it. And I feel so bad because somebody spent a lot of money to get me this gift card. I don't know where it is. I keep hoping up one day it turns up, but I know there's basically $100 lost in my house somewhere.

SMITH: So if you find a Crate and Barrel gift card, it belongs to Alison Stewart.

STEWART: I didn't say it was Crate and Barrel, you did.

SMITH: I'm just guessing because you were getting married.

(Soundbite of laughter)

SMITH: Well, it's not only losing these things because…

STEWART: It was Crate and Barrel.

SMITH: …because they - oh, look at that. I totally guessed it - because it's not just the cash value. I mean, there are expiration dates, there are dormancy fees, and there's a little problem where they get stacked up in the back of a drawer and you don't find them for years to come. Well, we have someone to walk us through the gift card craze.

Mike Santoli is the associate editor of Barron's magazine, and he joins us this morning.

Good morning, Mike.

Mr. MIKE SANTOLI (Associate Editor, Barron's Magazine): Good morning.

SMITH: So you've got to explain this to me because I've never bought a gift card, I've never got one. It seems a little odd that anyone would even want to give these things. I mean, they're just cash with limits, right? It's cash with catch, right?

Mr. SANTOLI: It's funny. The psychological impulse is interesting. It says, basically, I'm not thoughtful enough to actually find something you might like, but I'm going to give you the ability to buy something at a place I think you might shop. And, in fact, the economists have shown that anything that kind of constricts where and how somebody spends essentially what is cash is kind of this inefficiency.

It's kind of like this friction in the system that doesn't really make a lot of sense but that does not really held back their popularity. Part of that is because retailers in many ways do love gift cards. You don't have inventory costs associated with them and people lose them, therefore they get to keep the cash after a certain amount of time. So the trend is there, although it is a little bit odd, I agree.

SMITH: Yeah. And, I mean, that's why cash was invented. It was a universal gift card you could take anywhere and get anything you want. But, I guess, it's just goes to put a $20 bill in a card these days.

Mr. SANTOLI: That's what people seemed to believe. Yeah, that there's a little bit something tacky about just giving the cash. And, you know, I would say that the number of gift cards that do go unspent, not because they're lost but because people just don't get around to it, they don't remember they have it when they walk into the Barnes & Noble or the Starbucks or whatever, shows that, you know, cash probably would be a better option.

SMITH: But, you know, it is nice to receive something. And as Alison was saying, they make little gift boxes these days, and little cards, and little ways to dress up the fact that you're basically giving them cash.

STEWART: Or sometimes a gift card will send you over the top. If something is $75 and you would be willing to spend $50 on it, and somebody gave you $25-gift card, then you can get the 70. That's the psychology I think about a gift card.

Mr. SANTOLI: Yeah. And if you happen to be spending money at that chain, that's perfect, exactly. If it's some place that you wouldn't otherwise wander into with something that you might want to buy, maybe not so much.

SMITH: Sure. If you're giving something to a c-oworker and the only thing you know about them is they walk in with a Starbucks cup every day…

Mr. SANTOLI: Right.

SMITH: It says I know something about you, not much, but I know a little something about you.

Mr. SANTOLI: That's right.

SMITH: But let's talk about some of the issues that people should look at with gift cards. Do all of them have expiration dates or these hidden fees? How do we know?

Mr. SANTOLI: I don't think - I don't know. All of them don't have hidden fees, but all of them, I believe, eventually have an expiration date. Sometimes it could be, you know, one year or even up to five years or something like that. And I do think now there are, finally, sort of disclosure rules where if somebody has to - have on the card or on the packaging exactly what the terms are, the fees are a little bit insidious.

Nobody thinks that when you buy $50 gift card, it only gives 47.50 in buying power or something like that. In fact, I recall hearing that the New York State, the state legislature passed, you know, new more strict laws on what people have to be told and what - how high the fees can be and how long the expiration dates can be.

So you just have to read the card or call the number on the card or go to a Web site of that card issuer to find out the details.

SMITH: Do we have any idea how much companies are making off of either cards that have expired or cards that get lost. I mean, basically corporations just keep that money.

Mr. SANTOLI: They do. It's interesting. I don't think that we have specific numbers, at least, that they're willing to tell us in terms of unused cards. But, you know what, it's funny. It's a bit of a headache for big companies, too, because when a company sells a gift card - if Home Depot sells a gift card, they don't get to count that - those - their dollars in their sales, in their revenue until somebody buys merchandise with it.

So, yes, they are having (unintelligible) to sell many of these as possible so people come in the stores, but it takes up to a year before the company can say, well, I guess that nobody is going to buy something, I guess we can recognize that sale.

So you have to get the cash, they get the use of the cash, but they don't necessarily get the credit for reporting that sale immediately. It's so - as they say it's just kind of frictional inefficiency that gets thrown in there. I mean, companies think it breeds loyalty. I'm not convinced that's entirely the case.

SMITH: And in this - the small amount of money that gets left on these cards if you buy a big purchase, say, for $60 and you have $15 left and you can't find anything to buy with that money. I know that California is - has just passed a law that will let residents, sort of, cash in their gift cards for cash. A couple of other states have done this where you could get money back instead of trying to buy a pack of gum at the register…

Mr. SANTOLI: Right.

SMITH: …to get up to the limit. But, I mean, is this a movement? Are people going to try and make these things more like cash?

Mr. SANTOLI: I actually think that there is or will be efforts in this area -, not necessarily just by the states or by the issuers themselves, but somebody out there could say, look, I'm going to basically buy and sell at a discount these gift card credits or remaining credits out there.

I actually think about this Bank of America program where if you have, like, a debit card, it rounds up to the next dollar and puts that bit of change in your savings account. That's a gimmick, too, but at least it kind of gets you something for it. So if you could sort of do something with the remainder on the gift card, it makes a lot of sense. I can remember as, you know, as maybe being in college and getting a gift certificate in the old days of $100 dollars and kind of going to the clerks saying how much do I have to spend here to get cash back for the balance. And it used to be only about half of it, so, you know, the precedent is there. Nobody utilizes that with the gift card though.

STEWART: And, Mike, what about all these Web sites where I can trade gift cards? Are they all on the up and up?

Mr. SANTOLI: Well, I think they're in the up and up. I'm just not sure you get - you're likely to get full value out of it. It really is all the matter of, you know, if $50 at Starbucks to you is worth, you know, $25 at Barnes & Noble, then maybe it makes sense to make that trade or whatever the rate of exchange might be at that point. But, you know, I do think with the mass market scenes, it does make sense to have some kind of an outlet out there as oppose to just, you know, being forced to essentially to spend money where somebody else thought you might want to buy something.

SMITH: It would be interesting to see list of exchange rates between what stores' dollars are worth.

(Soundbite of laughter)

SMITH: We need like - I think we need like an Alan Greenspan or something to run this alternative economy we'd set up.

Mr. SANTOLI: That's right. You know, it's interesting. I - the only gift cards I bought this year were for nephews at Gamestop. You know, I didn't know what videogames they might want. Gamestop does something interesting. You know, they buy and sell used videogames. And you walk into the store and there it says we're buying this particular game today for $30 and tomorrow maybe at 28 or 32. So, you know, there are efforts out there to, quote, "make a market," in these, you know, not so transferable instruments.

SMITH: There are always markets for everything.

Mike Santoli is with Barron's magazine. Thanks for joining us.

Mr. SANTOLI: My pleasure. Thank you.

STEWART: And thank you for joining us for this hour of THE BRYANT PARK PROJECT. We're always online at npr.org/bryantpark. I better get to Barnes & Noble and use that gift card.

SMITH: Do it now.

Well, this is THE BRYANT PARK PROJECT from NPR News.

STEWART: Thanks, Caitlin(ph), my niece Caitlin.

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