Gift cards are a billion-dollar industry, but most would be shocked at how much gift card money goes unused. Customers lose out and companies essentially pocket the difference. Check out the rest of our story for full details.
How Much Money Is Spent On Gift Cards Each Year?
Gift card companies have found a unique way to market to shoppers by offering potential recipients the option of receiving a gift card in exchange for purchasing one. They can offer this service because many consumers don’t even bother to use their cards, instead of trading them in for cash or saving them up for a rainy-day fund.
According to the National Retail Federation, Americans spent $137 billion on gift cards in 2021. That’s more than twice as much as customers spent roughly a decade ago. “The number of outlets where you can buy a gift card keeps growing, and consumers seem to like that,” said Tom McGee, chief executive for the National Association of Convenience Stores (NACS).
The average American family of four spent $534 annually on gift cards in recent years. The survey found that 46 percent of Americans buy a gift card every year, but only 11 percent said they use them. “Families think they’re getting a great deal, but often they’re not,” said Sally Johnson, President, NRF.
The NRF also reports that parents are not making gift card purchases even as they grow more concerned about how much money their children are spending. Just 25 percent of parents said they purchased a gift card last year for their children, down from 29 percent in 2007. Only 15 percent of parents buy gift cards for themselves, compared to 22 percent in 2007. The billions that Americans will spend on gift card dollars this year will be a good deal for the companies that market them. Those who have yet to buy gift cards are finding they are sold in odd places nowadays. They can be found at grocery stores, restaurants, gasoline stations, and even on the Internet.
Amount Of Gift Card Money That Is Not Spent
For the billions of dollars in gift card sales, how much gift card money goes unused? One study found that more than $41 billion of gift cards is currently unused and have accumulated in consumers’ wallets. Those unwanted cards and store credits leave a lot of money in the store’s pocket. It’s no wonder companies want to expand the gift card market. Unused gift card balances equal big money and cold hard cash for corporations to pocket.
The problem for consumers is that gift cards have high markups on their retail price. They cost the retailers $1.47 to print, ship, and distribute a card containing $20 in cash that ultimately sells for $20. Gift card companies sell them at a 70 percent or more markup, according to Aite Group analyst John Whelan. The average retailer makes an estimated profit of 30 percent on a gift card transaction, compared to 10 percent or less on cash sales. In-store gift cards can be loaded with cash at the store, or many retailers are beginning to offer e-cards as an alternative. In this case, the money is added electronically by a computer system operated by the retailer. Although people may have no trouble spending cash on their gift cards, they seldom use them and continue to add to their unused balances.
What Happens To Unused Gift Card Funds?
Companies are essentially allowed to pocket the money from unused gift cards. They’ve actually already pocketed the money. They just know those they can count on a large portion of unused gift cards balances. This clearly influences the financial decisions of corporations to keep the gift cards coming. Unused gift cards for cash means a great deal for them. That’s why you continue to see the featured placement of gift cards in most stores. This spurs people to buy gift cards for themselves and as gifts for others.
People are so accustomed to the idea of buying gift cards. Unfortunately, they’re not great at managing gift cards like they do cold hard cash. There aren’t the same behavioral tendencies to track gift card money as you would cash in a financial institution. The advent of smartphone apps to track gift cards could help. The ability to store unused gift card codes digitally may help reduce the number of outstanding gift cards.
Do Gift Cards Lose Value Over Time?
The amount of money on a gift card can sometimes decrease over time. A Federal law mandates gift cards cannot expire less than 5 years after they are purchased. Typical gift card expiration dates may be far in the future, but there’s a catch. Companies are allowed to charge inactivity fees for dormant cards after 12 months. Those fees can be charged monthly to diminish the value of outstanding gift cards. This isn’t exactly a great personal finance outcome for customers. Most who redeem gift cards end up being unaware this is even a possibility.
Conclusion: Unused Gift Cards
There are many stories of people who give gift cards that end up in a drawer and never get used. When the year passes, they still just have an unused card with no value. By saving gift cards and using them when you can, you can eliminate the risk of losing money. Customers must become savvier about managing gift cards to avoid expiration dates and activity fees. The gift card market will continue to make money hand over fist, as long as customers allow them to.