Wednesday, February 14, 2007

...and give us all the change in your couch cushions, too!

If you live in Oregon, the state wants to take the money you forgot you had and give it to schools. Not the change in your couch, but the unused balance on the gift card sitting in your junk drawer. Currently, many gift cards expire after three years. A proposed new law would ban those expiration dates and require stores to turn over to the state any money left unused on a gift card for more than three years. That's just nuts!

Don't get me wrong, I like schools -- and I hate gift cards. From an economist's perspective a gift card is a horrible gift. If you don't know what to get your new boss or new mother in-law or new girlfriend, give her cash. (She might call you thoughtless at first, but she'll thank you once you explain it to her.) The giftee will spend a $20 bill wherever she wants, on whatever will give her the greatest utility -- maybe that means a round of drinks, or a bag groceries -- but that $20 Target card is only good for cheap, mass-produced Cherokee chinos or Mossimo jeans and the like. Worse yet, the gift card acts as a short term, interest free loan to the retailer. You give Target $20 today for a gift card in exchange for them giving your girlfriend $20 worth of merchandise in the future. And when she only spends $17.98, that gift card becomes a loan with a negative interest rate! A pretty evil scheme pulled off by greedy and conniving retailers. (And your girlfriend can't be mad at you for railing against the forces of evil, right?)

So I 'm in favor of actions that erode the appeal of the gift card. But if the gift card is bad because it distorts individual spending decisions, clearly this scheme is even worse. Not that I think we should let the retailers keep the unused balanced after three years either. Instead, I say let's just ban the gift card outright. Give people back the ability to maximize their utility through their own decisions -- to spend their money, or their friend's money, however they want. Who knows, that might even include making donations to the schools.

2 comments:

kevin neill said...

I couldn't agree more. Gift cards are the gifts of the lazy. If you intentionally go to a store to buy a gift card, you are basically telling the person for whom you're buying the gift, "Hey, I lack the thoughtfulness and creativity to present you with a decent gift, so instead I've narrowed down you're shopping alternatives by confining you to... Bed, Bath & Beyond! So go ahead and find something for yourself. After all, it's your birthday, not mine!" Gift cards are just the easy way out.

Furthermore, you could argue that gift certificates are bad from a transportation planner's standpoint, insofar as they double the amount of trips to a store - one trip for the gifter, one for the giftee.

The only benefits go to the store at which the gift card is purchased: they retain the original customer, add a new customer, and force that customer to either spend more than the amount of the gift certificate to ensure that it is completely used, come back to spend the remaining $2.02, or just let the store keep the change.

I would certainly like to see gift cards eliminated from the gift-exchanging scene, but find it hard to believe that such an easy, convenient gift could ever be separated from the consumer, who's often looking for... an easy, convenient gift. The author of the post mentioned that he's in favor of "actions that erode the appeal of the gift card". Any ideas, other than scolding the lady in front of you at Borders for trying to buy a gift card?

Santo said...

Kevin,

You asked if I had "any ideas, other than scolding the lady in front of you at Borders for buying a gift card?" Actually, that's not a bad idea. Shame is a powerful disincentive. But my proposal is straightforward: Ban the gift card. We make all sorts of other evil things illegal, don't we?