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Holiday shopping tip: do not give gift cards!

26 October 2008 1 views 3 Comments

This holiday season, you may be tempted to use gift cards as a convenient way to buy a present for someone who’s notoriously tough to buy for.

Don’t do it. Give cash instead.

Here’s why – it has nothing to do with etiquette or propriety and everything to do with the mechanism of gift cards.

Gift cards feel like cash to consumers. They have a preset dollar amount and you use them to buy things.

The catch is this – gift cards are not cash. Gift cards are actually a form of debt issued by the company, just like a corporate bond. This means that if a company goes bankrupt and is able to release itself from obligations including debt and bond holders, the gift card is immediately null and void.

If you have a gift card from any company still laying around, use it and quickly. If you receive one as a gift, use it quickly. Shoppers last year who had Sharper Image gift cards realized too late that the company’s bankruptcy meant it did not need to honor any gift card. This also applies to any contract as well – if you buy an extended warranty on any product, the moment a company declares bankruptcy, that contract can be broken.

If you can’t decide what to buy someone and you want something like a gift card, consider giving cash instead.

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3 Comments »

  • financialaidpodcast said:

    Jeff – I’d be willing to bet a doughnut that in the sense of this article, debit/stored value cards fall in the same boat. Only cash is cash. Check the terms and conditions on the Visa card just to be sure.

    # 27 October 2008 at 9:45 am
  • Jeff said:

    Do gift cards from Visa and Amex count as ‘gift cards’ in the traditional sense?

    I know that the banking debacle has created some unease in the ranks, but if I purchase a Visa Check Card from Bank of America, am I still on tenuous ground?

    *BTW, I’m a gift-card fiend and am going out this week to use up my stash. I remember the Sharper Image fall from grace and luckily didn’t have one of theirs.

    Thanks!

    # 27 October 2008 at 8:43 am
  • Dave said:

    The only gift cards I told my family/friends that I want is SmartyPig gift cards…

    # 27 October 2008 at 8:24 am

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