Americans Set to Spend Nearly $30 Billion on Gift Cards This Holiday Season

As the holiday season approaches, Americans are gearing up to spend big on gift cards. According to the National Retail Federation, it is estimated that Americans will spend nearly $30 billion on gift cards this year. Restaurant gift cards are proving to be the most popular, accounting for one-third of all gift card sales.

However, while gift cards may be a convenient and popular choice for holiday gifting, many of them end up forgotten or unused. Paytronix, a company that tracks restaurant gift card sales, reports that around 70% of gift cards are used within six months. Nevertheless, tens of billions of dollars' worth of gift cards go unredeemed.

A survey conducted by Bankrate in July found that 47% of U.S. adults had at least one unspent gift card or voucher, with an average value of $187. This amounts to a staggering $23 billion in unspent gift cards. Often, gift cards get lost or forgotten, or recipients choose to save them for a special occasion.

To protect consumers, federal law dictates that gift cards cannot expire for five years from the time of purchase or the last time money was added to them. Some states have even longer expiration periods. For example, in New York, gift cards purchased after December 10, 2022, cannot expire for nine years. However, it is still advisable to use gift cards promptly due to potential inactivity fees and inflation devaluing their worth over time.

While some gift cards may accrue inactivity fees if left unused for a year, especially generic cash cards from Visa or MasterCard, retail stores closing or going bankrupt can render gift cards worthless. To prevent this, National Use Your Gift Card Day was created, providing an opportunity for consumers to spend their gift cards and clear out their stash. The next National Use Your Gift Card Day will be on January 20, 2024.

Alternatively, individuals can sell unwanted gift cards on sites like CardCash or Raise. Although these resale sites typically do not offer face value for the cards, they usually provide around 70 to 80 cents per dollar, allowing consumers to recoup some of the card's value.

But what happens to the money on a gift card if it goes unused? The outcome depends on the state where the retailer is incorporated. Retailers can use the money from gift card purchases right away, but they also have to account for the possibility of the cards being redeemed. Each year, companies calculate "breakage," which refers to the portion of gift card liability they believe will not be redeemed based on historical averages. In some cases, breakage turns into profit, as seen with coffee giant Starbucks, which reported $212 million in revenue from breakage in 2022. However, in 19 states, including Delaware, retailers must work with state unclaimed property programs to return money from unspent gift cards to consumers. If the money is not claimed by individuals, it is used for public service initiatives.

To claim unspent gift card funds, consumers can turn to state unclaimed property programs. All 50 states and the District of Columbia have such programs, returning approximately $3 billion to consumers each year. While finding the holders of unspent gift cards can be challenging, the growing number of digital cards that include the recipient's name simplifies the process. Consumers can use the website MissingMoney.com, jointly run by state unclaimed property offices, to search for any unclaimed property they are owed, including cash from unused gift cards.

However, it's not just forgetting to use gift cards that consumers need to be wary of. Gift card scams are on the rise, with nearly 65,000 consumers falling victim to scams in 2022, resulting in a loss of over $228 million, according to the Federal Trade Commission. Scammers often pose as legitimate businesses, charities, or government agencies, contacting victims through phone calls, texts, emails, or social media messages.

One common tactic involves pressuring people into buying gift cards and then requesting the card numbers or a photo of the card. In November, Amazon warned its Prime members about a surge in scams where criminals posed as customer service representatives and sent emails threatening account suspension if action wasn't taken. These emails included links to phishing sites where scammers obtained login credentials or payment information.

If someone falls victim to a gift card scam, the first step is to report the incident to the gift card issuer. This is typically the company where the card would be redeemed, such as Amazon, Apple, Target, or Walmart. Some companies are flagging fraudulent transactions and freezing gift card funds, so there may be a chance of recovering the funds if the scammer hasn't used them yet. Additionally, victims should report the scam to the Federal Trade Commission at ReportFraud.ftc.gov.

As the holiday season approaches, it is crucial for consumers to be informed about the potential risks and benefits of gift cards. By staying vigilant and using gift cards promptly, individuals can ensure they make the most of their holiday presents while avoiding scams and financial losses.