Gift cards are easy. They come in all price ranges. They save time. They’re perfect for the individual who has everything. They prevent worry about buying "the wrong thing." They are available in all shapes, colors and sizes - some with fascinating holograms of dancing animals and other fun images that can be presented with a little WOW in perfectly sized decorative tins, cards or boxes. And now consumers can even more conveniently buy and personalize gift cards online that can be sent via email.
Gift cards are inarguably far more fashionable than old-school, awkward, paper gift certificates. Plastic is the new cash: popular, stylish and a largely acceptable alternative to extending actual greenbacks. While it is true that no one wants to risk giving a bad gift, the real catalysts to the gift card phenomenon are the companies that create gift cards. The popularity of gift cards is simple. They have been SOLD to consumers by the companies who benefit financially from their purchase.
Gift cards are known within the retail industry as a “stored-value” product. They often store their value permanently (much to a company’s delight) when we fail to use them before they expire. Financial industry experts calculate that ten to twenty percent of gift card value will never be redeemed. In addition, most customers spend some of their own money to buy merchandise that exceeds the value of the card. That is another holiday or birthday bonus to gift card issuers.
Children through the early teen years may not distinguish between gift cards and actual credit cards when both pieces of plastic bear the credit card company logo. Those age 7 or under almost certainly can not comprehend the difference. Add into the mix of this confusion flexible gift cards. These are cards issued by credit card companies that can be used anywhere, not just in a given store, and that very closely resemble the real deal but are also a stored value product. But to be sure, people with gift cards and flexible gift cards in hand do not have to consider interest rates, paying bills, and understanding numerous fees associated with “real” cards.
A gift card is often a fine gift for an adult with a complete understanding of how they work. However, there can be downsides for child recipients who lack sufficient understanding to distinguish between a general gift card and a credit card; especially when both bear the same logo and appear to function in the same way. When giving these to kids, we are giving them something that seems like and often looks almost exactly like a credit card and we are having them use it with no payments ever required. From the card issuer side, it is a brilliant future credit card holder training program that can boost credit card company profit when these same kids later experience high interest rates and fees because they never learned how to choose and use a real credit card responsibly.
Children just forming their view of the credit and consumer world need all the mentoring and practice they can get in sound credit management practices. Jst as it is important to dispel the notion that money comes from ATM machines, it is important to teach kids about responsible choices when it comes to gift cards and credit cards.
Are gift cards for children to be completely avoided? Maybe not, if you use them as a teachable moment. Everyone has to decide for themselves. Perhaps the simplest question to be asked and answered in each family is whether you want to teach acquiring things that you want and need by handing over plastic or by handing over good old fashioned money. If gift cards go on your "what not to buy" list, consider giving a special toy or clothing. While it will require more of your time and planning, or even cold hard cash, avoiding financial confusion may the most thoughtful gift they will receive.
This article is adapted from one written by Megan O’Neil-Haight, The University of Maryland Extension, and originally published as "The Perfect Gift... but for Kids?" in Delmarva Youth Magazine, November/December 2007.