$8 billion in unused gift cards!

A few weeks ago, I blogged about unused gift cards. (One person, 'quannah rooney', replied twice for some reason -- Mom, learn how to use the spell check!). An article by the authors of Freakonomics in last Sunday's New York Times Magazine provides more complete data about the sheer size of the gift card economy. According to the research from TowerGroup, consumers purchased $80 billion worth of gift cards in 2006. Of that, $8 billion will never be redeemed.

This is obviously a very large number. To put it into perspective, it's larger than the annual value of credit card fraud in the United States. And it is certainly larger than the unspent $50 gift card from Eddie Bauer in my desk drawer. (If only winter would make an appearance, I might be able to spend that one this year.)

The article in the Times explores the reasons why people give gift cards in the first place. As economists, the authors wonder why people don't simply give cash. This would be far more rational, and more or less guarantee that the gift isn't wasted. But as a gift, cold hard cash feels, well, sort of cold. Gifts are far more complex than mere exchanges of economic value. The most important part of a gift is not economic -- it's emotional. Gift givers are trying to give something more than money. They are trying to transmit emotional value that exceeds the economic value of any pile of money, no matter the size. The question is whether gift cards accomplish this task.

Despite my failure to use the full value all of the gift cards I have received over the years -- and thereby provide large corporations with free money that I need far more than they do -- I tend to think that gift cards work pretty well as gifts. They do require some thought, since the store where the card can be redeemed must match the preferences of the receiver. (This may explain why a Talbot's gift card likely will remain entombed in my desk drawer for the foreseeable future.) But the authors of the Times piece disagree. They argue that gift cards are too easy, and as a result their value falls -- perhaps even below their face value. Thus the unused $8 billion. I'm not entirely convinced, but it is an interesting theory. Either way, I hereby vow to spend all of my unused gift cards this year. (Anybody know if Talbot's sells hiking boots?)