EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

Why Gift Cards Are a Thoughtful Gift: My Economist Mom Perspective

December 27th, 2011 . by economistmom

gift-cards

Before Christmas, Matthew Yglesias had this nice “economist’s guide to giving Christmas presents” in which he urged gift givers to get the most “bang per buck” by being both redistributive (not just reciprocal) in gift giving and taking risks by actually choosing a gift (avoiding the economist’s tendency to opt for cash for efficiency sake).

A few days ago (pre-Christmas) I felt like writing my Economist Mom corollary to Matthew’s column; I wanted to put in a plug for gift cards.  But I got too busy.

So, for the record (and as my advice for your future gift giving occasions), here are a few reasons why this economist and mom does not view gift cards as a “cop out” gift:

  1. A gift card to anyone is at least slightly more thoughtful than cash as long as one gives some thought to the selection of the merchant as having some correlation with the gift recipient.  It shows you made the effort to think about what the gift recipient might need/want and took the time to purchase the gift card (at least a tiny bit harder than visiting the ATM).
  2. From a mom’s perspective, giving gift cards to the kids is a perfect compromise to satisfy one’s urges to control the kids’ consumption (steering them toward particular merchants at least) while letting the kids to do their own fine-tuning.  It’s a great “maternalistic” alternative to giving cash.
  3. The “bang per buck” of the gift card is maximized when Christmas gift cards are redeemed at post-Christmas sale prices.
  4. Buying those gift cards before Christmas, even if they aren’t redeemed until after Christmas (or ever, actually) still contributed to economic activity when the cards were purchased.  It’s good stimulus even if the cards for pre-paid goods and services are never transformed into the actual goods and services.  (The purchase of the gift card itself is effectively purchasing the “service” of postponed explicit goods and services.)  In fact, businesses don’t seem to mind if you never redeem the gift cards and just end up giving them money!  But as a good gift-giving economist, if you care about overall welfare/utility maximization and not just business profits, you really should urge your recipients to use their gift cards before they lose them.

So maybe you can figure out where the bulk of my spending on my gifts to my kids went this year.  I’m spending the next few days driving them to the particular stores and advising them on their online shopping.

Hope you all have happy holidays.  Now go use your gift cards!  ;)

2 Responses to “Why Gift Cards Are a Thoughtful Gift: My Economist Mom Perspective”

  1. comment number 1 by: Vivian Darkbloom

    Gift cards may not do as much as you think to stimulate spending—perhaps as much as 10 percent of the value of those cards are never redeemed. However, they are a very effective means to reduce state-level debt. Many states have laws that allow the value of those cards to escheat to the state coffers.

    http://online.wsj.com/article/SB124605742408663533.html

    For the 2011 holiday season, that likely will mean a $5 to $10 billion gift to state governments.

  2. comment number 2 by: Brooks

    A couple of years ago I commented that it seemed to me that perhaps an effective form of stimulus would be gift cards of a sort:

    …an idea that occurred to me in January 2008 for fiscal stimulus* is government-issued gift certificates with a short expiration date. Like increased transfer payments (e.g., increased food stamps), they would achieve the objective of being mostly spent rather than saved, but unlike those transfer payments, the gift certificates would be sent to everyone so that there would not be as much “unfair” redistribution of income. Because money is fungible, to avoid people using them, in effect, to save more rather than spend more, necessities such as groceries would have to be excluded, which would seem cold and would probably cause political resistance from some on the left, but that would be netted out by the greater broad-based political support. Obviously there would need to be a one-time setup of administration for the program, and the cost of fulfillment, which would probably be a small percentage of the cost of the program.

    * Taiwan actually used this approach — “shopping vouchers” — one year later in January 2009 http://www.forbes.com/feeds/afx/2009/01/18/afx5936225.html — I don’t know “results” but I’d be interested if anyone has link to any analysis.

    http://dmarron.com/2009/09/06/why-economists-messed-up/

    I added in follow-up comment:
    Just as follow-up to my “gift certificate” idea, to the extent that “we” (the American people through the political process) wish to use increased transfer payments such as food stamps, unemployment benefits, etc., as stimulus in order to increase redistribution of wealth to those who suffer most during recession, we can certainly do so in lieu of my universally-distributed gift certificate idea. But the advantage of the gift certificate idea is this: even though such transfer payments are arguably the most efficient form of fiscal stimulus (faster than many forms of spending and more efficient in terms of portion immediately spent than tax rebates across broader/all income levels), there is a political limit to how much such redistributional (transfer payment) stimulus can get through Congress, and the result is that we get some amount of it accompanied by less efficient forms of stimulus such as “middle class” rebates to placate that “middle class”. Rather than the latter, the gift certificates would accomplish the efficiency (getting spent rather than saved) without the political limitation faced by redistributional transfer payments.