Books written by Ray Sullivan

Sunday, 29 December 2013

It's a Gift

At this time of year many of us are lucky enough to have our fair share of presents. Some of us will have emboldened our sock drawer with comical socks, a few garish ties will have been worn on Christmas day, possibly for the only time ever, and of course there was a lot of tech unwrapped on the 25th.

It's not always easy to decide what to get the person who has everything or maybe nothing - where do you start?  And in today's acquisitional world it isn't always possible to know what everyone has at any given point in time.  Many are resistive to the idea of giving cash as a present, even though it ensures that the recipient gets what they want, however the very close cousin, the gift card, doesn't seem to have the same degree of resistance.  To be honest, though, a gift card is cash in another guise with a significant difference - it can generally only be redeemed in one store or chain.

What isn't always realised is that these gift cards have a finite life - if the recipient fails to spend the money on the card within a specified period, often around two years, then the cash that has been sitting in the store or chain's bank account earning interest for the last two years suddenly becomes a cash bonus to the store. So if you pull out the sock drawer and decide to get rid of the joke pair of socks you received two years ago, perhaps to make room for this year's offering, and you find a gift card wrapped up in them that has expired then you have inadvertently made a store a little bit wealthier.

This isn't universally correct.  At least ten US states have enacted laws that make the expiry date illegal, although some have just extended the period to give the recipients an opportunity to redeem over a longer period, but then creaming off any unclaimed credit for the public purse after, say, five years.  Probably still as unreasonable, but at least it should alleviate local taxes a smidgeon.

But store cards aren't the only source of gift cards and the two biggest sources available are the Apple iTunes card and the Amazon gift card.  One reason for giving these - or using them yourself - is that they avoid the need to register a credit card with the online stores.  The main reason is as a gift, though.  These have probably been given in their thousands, possibly millions, over the Holidays.  It makes sense - for everyone getting their first iPad or Kindle a gift card is an excellent idea, or so it seems.  It's also convenient if you're stuck for ideas and know they have a suitable device that would benefit from one of these cards.  If the recipient fails to register the card within two years or even just fails to spend it all then the balance reverts back to Apple and Amazon - like they need the cash.

I can't see the reasoning, apart from greed, because there's no cost associated with holding onto the cash value of the card electronically, although I'm sure their accountants would point to the liability hanging over their company.  It's a problem many traders would love to have, but in a technical accounting sense every gift card represents a potential credit note against their stock.  I'm sticking with greed in the main.

If you received such a card as a present then do ensure you register it and spend it.  If you gave such a card then let the recipients know that the card will expire in time and encourage them to use it - after all, you've already made Apple or Amazon wealthier than necessary by lending them a sum of money to invest while your son/daughter/brother/sister/mother/father/mate etc thinks about downloading a few eBooks or the odd iTunes.  Send them a link to this article if you like.

My advice for the future is to avoid giving gift cards.  If you must, keep the value as low as you can get away with.  And make sure you always spend any card values you hold while encouraging others to do the same.

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