How Gift Cards Really Get You

Last Updated Jul 28, 2010 11:25 AM EDT

My wallet currently holds four gift cards, and I've got three others sitting in my bedside table drawer. My daughter starts first grade at a parochial school at the end of August, and we're required to participate in a gift card fundraising program.

I dislike gift cards for many reasons, the biggest of which is that they seem like a waste of money for the shopper. They're a huge win for the retailer. According to Brian Riley of TowerGroup, which tracks gift card spending, about 6% of gift cards go unused or get lost every year. That's down from a pre-recession high of about 10% three years ago, but it still totals in the billions.

More important, I've noticed that I'm a less discriminating shopper when I hold a gift card in my hand than I am when I'm paying cash. I have a much different (lower) standard for what makes a good deal. I'll pay $60 for a Talbots skirt with a gift card, and I know I wouldn't buy that skirt if I were paying with my own plastic.

Riley confirmed my hunch: People tend to spend more when they have gift cards than they do if they pay cash. "About half of all consumers spend beyond the value of the card itself," Riley says. "If someone has one to Home Depot, instead of buying a Murray lawn mower, he might upgrade and buy a Lawn Boy." It's harder, Riley says, for shoppers to part with cash, even if that cash was also a gift.

Now, the Federal Reserve's new credit card rules include more consumer protections with gift cards. These rules apply to cards sold on or after August 22, 2010. Gift card expiration dates are extended or eliminated, and a card can't charge inactivity fees for three years.

Good thing, because I'm drowning in gift cards these days. Back to the fundraiser: As a family, we have to purchase $5,000 worth of gift cards from the school. The school gets those gift cards at a slight discount, via Great Lakes Scrip Center, and sells them to us at face value, pocketing the difference. On our $5,000 purchase of gift cards, the school nets $250.

Might not seem like a lot, but multiply it out by roughly 150 families, and it does yield a tidy income for this school to fund extracurricular programs parents want their kids to experience.

I do have the option of simply writing a check for $250 to the school, and I'm leaning toward doing so. If the grocery store where I shop each week participated, it would be no problem. I'd buy a $100 gift card each week, spend it on groceries, and be done with it by next June. But I prefer Wegmans, which doesn't participate.

Instead, I'm trying to anticipate family purchases in time to buy a gift card. We need new air conditioning filters, which I can buy at Home Depot. So I need to stop by the school office, order and pay for the Home Depot gift card, go back a week later, pick up the card, then go get my air conditioning filters. What a hassle.

I could harass friends and relatives, and I'm sure many would gladly buy a $50 gift card for anything from Applebee's to Lands' End. But I'm still out the money up front, and then the cards probably go unused in my friends' drawers. I don't want to burden them with this. They'll be hearing from my kids for years when they're hawking Thin Mints for Girl Scouts and popcorn for a sports team.

I'm giving this fundraiser until Christmas, then paying the school the balance of what I owe. Have any ideas on making gift cards work for you? Or fundraisers that parents don't mind? Sign in to share them below.

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