Beware the Gift Card This Holiday Season!

Stop what you’re doing right now. Take a look at your holiday gift list. All of your holiday gift list including secret Santa scenarios and office swaps. Now realistically ask yourself how many people on that list you’re planning to buy gift cards for. Chances are it’s more than a few. Particularly for people who are hard to buy for or who seem to have “everything,” the gift card is a great option. We know that we’re often told by people we’re getting gifts for, “Just get me a gift card!” And it would seem that in the question of “How do I reduce my relationship with consumerism and ‘stuff?’” the gift card would be a good solution. But actually gift cards are a rigged game designed to absolutely keep people as tied as possible to the cycle of addictive consumerism. How is that? We’re about to explain it.

First, We Will Admit That There are a Few Benefits to Gift Cards as Gifts

We’ll say right off the bat that if the choice is between buying “stuff” that your gift recipient may or may not like and that may just end up in a storage bin in a basement, then a gift card is a better option. That said, we’ll give you the best option below if you read to the end of this article!

Have You Ever Wondered How a Company Is Making Money Off a Gift Card?

Maybe you don’t think about these things. But if you can buy a gift card for twenty-five dollars and the company then gives you the full twenty-five dollar credit for it, how are they making any money since clearly the card costs money to make and distribute? In fact, companies aren’t just making money from gift cards, they’re making profits. How are they making profits? There are actually four ways and after you understand them, they’ll seem obvious.

Profits from Margins on the Products They Sell: Every retail company in the world is selling their products at a profit margin. In most cases, the margin on their profits is so high that it offsets any loss from the production and distribution of gift cards. So unless your gift recipient is using his or her card on bottom-of-the-barrel clearance merchandise, the store or brand still comes out ahead.

Profits from Referred Customers: Sometimes, though not as often as they’d like, gift cards end up turning new customers on to a store, product or brand. Every time a store, product or brand acquires a new customer, they make more money and profits. So the gift card works as a marketing tool for customer acquisition that ultimately has a positive ROI for new customers.

Profits from Unspent Balances: Where do unspent or unclaimed balances from gift cards go? Into the profit margin of the store, company or brand. That five cents that you didn’t redeem may not seem like much, but when you multiply it out over all of the unspent balances it turns into a lot of cash.

Profits from Customers Who Spend More Than the Card Value: From our research, this seems like it’s the most common and most profitable scenario for stores, brands or companies. How often when you’ve had a gift card have you gone in and spent exactly the amount of the gift card? More often than not, what happens is that people go to the store intentionally because they have the gift card and want to spend it. It draws them in. However, once in the store, consumption fever takes over and they end up buying even more “stuff” than was intended by the card. So a twenty-five dollar gift card works as a marketing tool to generate a hundred dollars in sales.

As You Can See, Gift Cards Do Not Help You Escape Consumerism’s Clutches

While it may seem like giving a gift card gets you out of the “cycle of stuff,” as you can see from above it’s actually just a smaller grinding gear in the consumer machine. You’re still doing companies’ marketing for them and they’re still reaping profits. So before you hit the gift card rack and stock up for holiday presents, consider whether in some ways you wouldn’t just be better off with …

The Solution? Cash Money!

Truly, the solution is “experience gifts,” but we know those aren’t in everybody’s budget for every single person. Rather than a gift card, give the cash equivalent of the gift card in the form of dollars or a personal check. We’ve discussed before the pros and cons of consumerism and money gifts, and while it’s not a perfectly black or white scenario it is a better scenario than “stuff” or gift cards. So what’s our advice? Go invest in some beautiful holiday money cards and give the gift of crisp bills. You will absolutely be doing a better thing to take power back from the consumer machine than if you purchased gift cards for everybody.

Did we miss a pro or con about using gift cards this holiday season? If so, tell us about it on the social media channels below.