When I was a teenager, I loved getting gift vouchers and using them in the sales.
I usually spent them in either the winter sales soon after my birthday or the summer sales after Christmas.
I didn't have much money so each voucher was carefully stored in my wallet and avidly spent. There was no way I'd let a single dollar go to waste.
I would've been astonished to hear that Australians in 2017 waste $70 million in unredeemed gift cards, according to research by comparison site Finder.com.au.
As an adult I've seen the paper gift voucher make way for the plastic gift card and now we're shifting to digital gift cards stored on our phones or in our email.
The concept remains the same and it's an easy, if unimaginative, standby for those customers who are hard to buy for – teenagers with fickle taste, or relatives you care about but don't know intimately.
It's so popular that Australians collectively spend about $2 billion a year on gift cards, according to estimates the Australian Retail Association provided to the Senate last year. Consumer group Choice puts it at $2.5 billion.
Cash gifts are becoming more standard too especially as Australia becomes more multicultural. In most of Asia cash is a traditional gift and in many countries, such as China and Vietnam, it's placed inside a red envelope. The Japanese, stationery fiends that they are, have elevated the concept to an art form with beautiful envelopes that evoke the aesthetic of kimonos and can be reused time and again.
Economists love a cash gift because it has the same value for both the giver and the recipient. In 1993 economist Joel Waldfogel coined the term "deadweight loss" to describe the gap between the price you pay for something and what it's actually worth. His research with undergraduates led him to conclude that gift giving destroys 10-30 per cent of value – so if you buy someone a $100 bag, they'll value it between $67 and $90.
Cash avoids that wastage, and gift cards are the next best thing. Many Australians feel gift cards are a more thoughtful, personal gift than cash, and one that implicitly encourages the recipient to spend it on something nice for themselves, rather than on the weekly groceries.
Mind you, this is probably overstated by retailers. In 2014 Choice surveyed 735 of its members and found that only one in four would prefer a gift card over cash.
The problem is not everyone is as diligent in spending their gift cards as I was at 16. A Finder survey of 2005 people found almost one in six people have let funds expire on gift cards in the past two years. On average we've left $54 in unspent credit on gift cards – effectively donating $142 million back to the retailers over the past two years.
On average, men are more wasteful, leaving $68 on the card on average, while women leave $45, Finder says.
In the past three years three out of five respondents to the Choice survey experienced a problem with a gift card such as being caught out by expiry, while one in three had lost the full value of at least one gift card in the previous three years.
I think there are a few reasons for this. First, gift cards can be lost, or simply left at home so you don't have them when you need them. Put them in your wallet, even if it bulks it out, or spend it online.
Second, gift cards usually expire and while some retailers will give you a grace period, others are hardcore. Some cards expire after three months, most are 12 months, and a handful never do.
Third, there's the hassle factor, especially if you're busy and it's not a store you shop at frequently. The overwhelming majority of gift cards in Australia are "closed loop", which means they can only be used with a specific retailer or group of retailers. They are usually free, whereas "open loop" cards such as those issued by Visa can incur fees for purchase, redemption and the privilege of checking a balance.
Fourth, there's always the risk of the retailer going out of business, as happened with Dick Smith just after Christmas 2015. Retailers such as Australia Post and supermarkets that sold the Dick Smith cards tried to do the right thing by customers, but many people lost money.
Also many retailers distribute low-value gift cards as marketing. I don't know about you, but if I've somehow wound up with a card entitling me to $20 at a fancy online florist where the minimum spend is $80, I won't use it unless I'm already planning to shop there.
The shift to digital gift cards may improve the redemption rate.
When my aunt gives me a gift card, she tells me to send a photo of what I actually buy and follows up if I don't. But most gift cards don't come with an in-built reminder system.
I'm not a big fan of vouchers simply being emailed to me, as there's a high chance they'll sink into my inbox and never emerge. But I like the sound of the Prezzee app, which will store your gift cards and then nag you to spend them. Unfortunately, it's only for gift cards bought through the Prezzee platform and you can't use it as a repository for all your gift cards.
With 50 retailers on board so far, Prezzee co-founder Claire Morris told me the redemption rate of gift cards on the Prezzee platform is 99.95 per cent. My teenage self would approve.
Note, legislation passed by the NSW Government in October will require gift cards sold in the state to carry a minimum expiry period of three years from 31 March 2018.
This article was originally published by The Sydney Morning Herald on 30 July 2017. It represents the views of the author only and does not necessarily reflect the views of AMP.
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