The $21 Billion Junk Drawer
I recently went digging through a drawer in my office looking for a business card. I never found it. Instead, I found a small archive of obscure, partially used gift cards, the kind that have become all too easy for distant family to tuck into a birthday note or Christmas card. Add the rebate programs that insist on paying out with prepaid Visa debit cards, and I have a familiar routine: swipe, get asked for a ZIP code that never quite works, and concede, cramming the still-unused Visa card back into my wallet, where it will live for a few more years.
It turns out I have plenty of company. Bankrate estimates Americans are holding about $21 billion in unredeemed gift cards and store credits, and 57% have held onto one for more than a year. With prices at the pump and the grocery store still climbing, that is real money worth putting to work.
Why do we let it sit? Behavioral economists call it “mental accounting.” We sort money into imaginary buckets, and gift-card money lands in the “not quite real” bucket. Paycheck dollars get spent carefully, while a $50 gift card to a restaurant across town waits for an occasion that never comes. Meanwhile, the issuer is happy to wait. Unredeemed balances, known in the industry as “breakage,” ultimately benefit the retailer, not you. The same instinct shows up elsewhere in our finances: excess cash parked in a forgotten account, credit card points we never redeem, and the old 401(k) still sitting with a former employer that may deserve attention.
When it comes to gift cards, a few simple habits help. Spend gift cards first, before reaching for your own wallet. For rebate cards, registering the card online with your address often solves the ZIP code problem, and a cashier can charge the exact remaining balance before you cover the rest another way. Watch the dates: federal rules generally prevent store gift cards from expiring within five years, but promotional and rebate cards are often exempt and can expire much sooner. And if a card is from a store you will never visit, regift or donate it rather than let it gather dust.
As we head into the holidays and many of us shop for kids, nieces and nephews, and grandkids, beware the gravity the junk drawer has on these gift cards. Perhaps tickets to a football game, a new pair of shoes, or a check can accomplish more than the gift card ever could. Cash goes where it is needed, and some may instead contribute to a 529 plan or a first investment account that can continue to grow long after the wrapping paper is gone.
In my family, though, I might do well to be careful what I wish for. When the gift cards stop, the gifts tend to materialize as clothes that don’t quite fit. Maybe I will start by cleaning out that drawer.
Corey Erdoes