Billions Wasted: Do Gift Cards Make Sense When So Many Go Unused?

Source :Time ;Brad Tuttle : January 9, 2012
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Retailers and restaurants love gift cards—so much so that they load them with bonus cash in order to sell more cards. This makes total sense once you realize how often gift cards aren’t used at all, and how all those cards add up to billions of dollars in profits.

Roughly $2 billion worth of gift cards will go unredeemed this year. That’s the estimate from the TowerGroup, cited recently at Philly.com.

That sounds like an awful lot of money. Until, that is, you realize that the amount in unused gift cards is actually down compared to the peak year, 2007, when approximately 10% of the value of all gift cards went to waste thanks to fees, expiration, and consumers who left them in drawers or otherwise just didn’t use them. All said, $3.5 billion worth of gift cards was unused in 2007.

What’s more, as reported by the Wall Street Journal and NPR, from 2005 to 2011, an absurdly high $41 billion worth of gift cards has likely gone unredeemed.

In the long run, when gift cards go unredeemed, their values are swallowed up by the retailers in question, or, in some instances, go to the states where the card was sold. In 2008, for example, New York state collected $9.6 million in unused gift cards.

By this point, consumers should be aware that gift cards can be a waste of money. In November, a Consumer Reports survey noted that one-quarter of adults still hadn’t used at least one gift card they’d received from the previous holiday season.

Nonetheless, gift cards remain quite popular for holiday season exchanges. In that same CR survey, 62% of those polled said they planned on giving one or more gift cards. Wealthy consumers, who helped boost luxury retail sales over the holidays, said that the gifts they most desired for Christmas were actually gift cards and cash.

Something tells me that nearly all of the cash handed out over the holidays isn’t sitting unused and forgotten in a drawer. As for the gift cards …

Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle.