Giving cash or gift cards

By Felix Salmon
December 23, 2009
Barry Ritholtz's attack on gift cards, and then read Andrew Leonard's response. Actually, don't do either: you should instead take advantage of the fact that absolutely nothing seems to be going on today to go out and buy a proper present or two instead.

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Go read Barry Ritholtz’s attack on gift cards, and then read Andrew Leonard’s response. Actually, don’t do either: you should instead take advantage of the fact that absolutely nothing seems to be going on today to go out and buy a proper present or two instead.

At heart, the debate over gift cards isn’t really about gift cards at all: it’s about individual attitudes towards the fungibility of money. Barry’s a great believer in giving cash, or, failing that, giving something which is “practically cash”, like a prepaid credit card. Andrew, by contrast, fears that giving cash is a waste:

Cash, like it or not, carries with it some assumption of responsibility. You don’t want to waste your cash frivolously, or you might feel compelled to save it for some greater goal…

If you gave me cash for Christmas, I’d probably save it to pay for groceries. But if you gave me a gift card redeemable at my local bike shop — I’d be utterly delighted to splurge on new gloves.

I’m surprised that Barry Ritholtz, hard-charging econowonk and hedge-fund manager, seems to believe that money stops being fungible when it’s gifted, while Andrew Leonard, bearded west-coast pinko, is the kind of person who deposits gifted cash into a bank account, where it dissolves into the pool of money needed to buy toilet paper and pay the rent.

I’m more like Andrew than Barry: if you tuck a check into my birthday card I’ll be very grateful, but I won’t mentally ring-fence that money and feel permissioned to splurge it. But I’m also very close to people on Barry’s side of the debate, who feel morally compelled to buy something they don’t really need if they get cash as a present.

So I’ll come down in the middle on this one: cash generally becomes more of a present the more likely the recipient is to treat it like a present. Gift cards, by contrast, might be a better bet for someone like me. Yes, there’s a deadweight loss to them — but as Joel Waldfogel demonstrates, there’s a deadweight loss to nearly all gifts. In a way, it’s the deadweight loss which makes them gifts.

One thing I’m unclear about, though: do gift cards generally cost more or less than the present which would otherwise have been bought? Do people have a mental budget for gifts, which they can easily spend in full on a gift card? That would imply that gift cards cost more than presents. Or do people mentally take account of the increased utility and cash-like characteristics of gift cards and scale back their spending accordingly? Has anybody done any studies on this?

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8 comments so far

Re the paragraph beginning: “I’m surprised that Barry Ritholtz…”

Is this an illustration of the fallacy of homo economicus? That would be the belief that humans treat money and finance with complete and utter rationality – unlike, oh, everything else in our lives.

Posted by KenInIL | Report as abusive

The really interesting question is:
“What percentage of gift cards go unused?”

Below is an old article but it pegs the number at over ten percent. That’s a lot of value that’s going over to retailers. _giftcards27.html

Funny, I just remembered, somewhere in this office is an $75 giftcard to Ruth’s Chris.

Posted by DanHess | Report as abusive

I thought Barry’s point is that so much is wasted because billions of dollars worth go unused and simply expire.

True, the personal touch counts also.

Posted by MarkWolfinger | Report as abusive

Prof. Joel Waldfogel argues that Christmas presents destroy billions of dollars of economic value each year. His book : « Scroogenomics : Why You Shouldnt you buy Presents for the holidays ».

Posted by CEZMI-DISPINAR | Report as abusive

Or you might look at this argument contrary to Waldfogel’s: 3/the-real-economics-of-holiday-gift-giv ing/

And then go buy Felix a gift.

Posted by DonCoffin | Report as abusive

Let’s say we were all mainstream bipartisan politicians – worst case scenario, I know – and the commercial insurance corporations asked us what we wanted for Christmas…

Gift cards would probably be traceable so we’d take the cash, go through the motions of caring either way what happens to America, then splurge on toilet paper and call it The Health Care Reform Bill.

Posted by HBC | Report as abusive

I am moderately anti-gift card but only very moderately. We give them to several young (as in, grade school age) relatives whose parents might be tempted to spend cash on themselves rather than the kids. We receive them every year, usually to Trader Joe’s. I like Trader Joe’s, and we do shop there and everything, but I don’t really appreciate the suggestion that I can’t get groceries on my own. It’s not worth making a fuss over though, so I always just laugh it off, and buy some garbanzo beans.

Posted by SelenesMom | Report as abusive

I agree, if you give me cash I will likely spend it on gas and Redbull. A gift card forces me in some ways to spend money on something I wouldn’t normally buy for myself. As for the comments about lost gift cards, I think everyone would benefit from checking out eGift cards. If you should misplace one, you can always re-print it. Also, you can pull it up on your PDA, so there isn’t really any excuse for leaving it at home. Each year, 75 million lbs of PVC is dumped into landfills due to plastic gift card waste– eGift cards do not generate that kind of harmful waste. For a directory of retailers that offer eGift cards, check out .. it’s the most extensive directory I’ve found.

Posted by mlo1988 | Report as abusive
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