Normally you should not buy gift cards for friends and family, unless you are getting an bonus or incent. Gift cards generally tend to be an insult to money. You take good old fashion money (taken virtually everywhere) and convert it into something that has less actual fair market value immediately. If you wanted to liquidate that gift card into the lower fair market value of cash, it also time and effort. Gift cards are basically scam, but of course there are times when you should think about buying them:
Reason to Buy #1. You are getting a discount, additional credit, reward for purchasing the gift card.
Most years when Chipotle is running the Buy $25 gift card, get 1 burrito for Free offer, I partake. I know that I will use $25 in a reasonable timeframe and a burrito at $6.50 is about a 26% return on your investment. If you are like me and you will end up using that gift card in less than 6 months – 26% return is unmatched.
Gift cards can also offer gas incentives at many grocery stores, but be careful you are not buying gift cards that have a fair market value below the gas incentive. For instances, you can purchase Kohl’s gift cards 12% off at plasticjungle.com, so buying them to save effectively 4%-8% – is not a deal at all.
One of the most popular articles on this website is “How to Save 18.8% to 22.6% at Home Depot or Lowes,” which specifically talks about buying gift cards at their real market value can save a basic homeowner $100s or even $1000s a year.
Reason to Buy #2. You are specifically targeting a company for a friend or family member.
Maybe you have an family member or friend that share a connection to a particular restaurant or retailer. This is an acceptable reason to buy of a gift-card, but be aware if you give a $100 gift card to Kohl’s to a girlfriend – you effectively paid $12 for that little piece of plastic (because fair market is only $88 or less).
Let’s not overlook the fact that these retailers should be offering you incentives. Gift cards usually have non-users (people who lose or forget about balances on gift cards) that eventually result in profits for those companies. Also the time value of money comes into a play when you find out the average gift card holder of xyz company holds their card for <x> number of days, weeks, months, years; on average before use. If that company is borrowing at 7% and they get $50 million in gift card sales, they have a lot of cash on hand they potentially do not have to finance. And finally, for most people –your consumption will increase if you hold a gift card and if someone wanted a statistical advantage against me to cause me to consume more – I want a REAL incentive for them to get that advantage.