Friday, August 22, 2008

Frugal Friday

Spend Your Gift Certificates Now

A bird in the hand is worth two in the bush. You've heard this before, right? Well it's true for gift certificates, gift cards and other cash equivalents as well. Until you actually use the gift card, it only represents the potential for obtaining what you want. And that potential has a way of escaping your grasp if you aren't careful.
While there is something to be said for timing your purchases to coincide with a sale or special promotional discount, there is also a tendency for people to fall into the trap of hording their gift cards or freebie coupons for some big purchase down the road. Holding onto these payment alternatives for long periods instead of using them in short order can actually decrease, rather than increase your buying power in a variety of ways.

Inflation: Over the course of time, inflation will gradually erode the real spending power of a gift certificate or other payment type with a fixed dollar value. Before hiding that gift card in your sock drawer for next year's birthday blowout, read our article about Beating the Time Bandit. The basic concept is that inflation consistently drives up the price of consumer goods by about 3% each year. The end result is that you could spend your $10 gift card now to buy a $10 hat. But if you wait a year before trying to make your purchase, you'll likely find that the same hat will then cost about $10.30 which means your gift card has lost buying power and is no longer worth what it was when you got it because its cash value has remained the same while the real cost of goods has increased.

Loss or Theft: The longer you hold onto your gift certificate, the more likely you are to lose track of it somewhere in your house (especially if it's within the reach of your children) or to discover that it was stolen before you had the chance to use it. Other destructive forces posing a risk to your ability to use that gift certificate 6 months from now include sunlight (yes, that ink can and will fade over time), liquid spills, and accidental disposal.

Fees and Expirations: Thankfully, this is becoming much less of an issue than it once was. But you should still be aware that some gift cards and certificates may come with a value reduction clause that will begin decreasing their dollar value over time until no balance remains. Some may also indicate a specific expiration date beyond which you simply can not use them.

Out of Business: Keep in mind that your gift certificate or gift card only has value so long as the specified merchant is in business. The author watched this happen first hand. A $100 gift certificate to a local spa was given as a birthday present. The recipient had no immediate plans to visit the spa. As the months rolled by, the giver occasionally reminded the recipient of the gift, encouraging the recipient to make use of it soon. After a few more months, it was discovered that the spa who issued the gift certificate had quietly gone out of business and the certificate had become worthless paper. If none of these reasons spurs you into action, consider this. Think of your gift certificate as a monetary loan to the issuing store and realize that the longer they have the cash that purchased your card without having to hand over the goods that could have been bought with that cash, the more money they make at your expense. They'd be perfectly happy if you never redeemed it at all, now wouldn't they.
This is an article my husband wrote on The spa gift certificate he mentioned was mine. I really felt so bad about it. He had given to me after our son was born and I never made the time to use it. I felt horrible that he had spent all the money and I never got to go the spa. That was not the only certificate with which we had problems . we had 2 other gift certificates we had similar problems with, but eventually were able to find a place to use. We have learned our lesson.
For more frugal ideas be sure to visit Biblical Womanhood.


Brooke said...

We're using our Kroger gift cards (that they added 10% to the total of) to help combat the rising cost of groceries. The extra 10% along with beating inflation by using the cards now rather than later is helping us save $$$

Dink said...

I'd never thought of the reduction in buying power like this. Thanks for sharing... I'll need to keep seeking ways to spend that gift card from JCrew. Even a year later it's very difficult to find anything there for $50 that I'd actually wear!