Gift cards can be a good thing for shoppers who aren’t sure what to get someone, but a study by Iowa State shows those cards can lead to some bad shopping habits for recipients. I.S.U. assistant marketing professor, Laura Smarandescu, says people have more of a connection to what they are spending when buying something with cash.
She says people are more likely to violate their budgets and end up spending more with gift cards than with equivalent cash gifts. Smarandescu says people see the gift card as something extra. Smarandescu says gift cards allow people to indulge, and they have “waste aversion”, where they don’t want to leave money on the card and waste it. And she says they often see the gift card like a coupon and use it to make a more expensive purchase. For instance, if you get a $50 gift card, you might see it as half off a $100 item and buy the more expensive item than you normally would purchase. Smarandescu says businesses like the benefits of gift cards.
She says a lot of people will delay using gift cards and they will expire and they never use the cards. And she says the cards cause people to spend more and become mechanism for people to become more impulsive about spending. Smarandescu says you can avoid the bad side of gift cards by including them in your plan.
Smarandescu says it’s always a good idea to have a budget when you go to the score and especially with gift cards so you have a “more rational mind” when using the cards. This will keep you from overspending. State Treasurer Michael Fitzgerald also has these tips for those who receive gift cards: Read the fine print to check the disclosures for expiration dates or fees that can reduce the value of the gift card.; Understand the retailer’s policy for replacing a lost or stolen gift card.; Use the gift card promptly.; Keep the original receipt if it was included with the gift card.
Fitzgerald says new gift card protections passed by congress earlier this year will go into effect in 2010. The new rules will prohibit fees on gift cards for one year and expiration dates of less than five years from the date of purchase.