When We Do (and Don’t) Spend Our Gift Cards

Last week, I found a Barnes & Noble $25 gift card tucked away in my desk drawer. Remembering the Christmas gift, I immediately decided to spend it. Now, days later, I still have not used it.

I was not alone. Forty-three percent of all American adults also have unused gift cards.

Unused Gift Cards

With Millennials having the highest average gift card value, we can break it down by age. While the youngest cohort, Gen Z (1997-2012) had the lowest average at $142, the oldest group in a Bankrate study, the Baby Boomers (born 1946-1964) came next with an average of $227. Then came Gen X (born 1965-1980) with $255 and Millennials (born 1981-1996), $332. You can see that there appears to be no pattern.

But for income, there is:

Demand and Supply

As economists, we can always return to demand and supply.

Demand

Spending a gift card, consumers are less likely to observe the law of demand. Researchers tell us that we are 2.5 times more likely to pay full price with a gift card. And, once in the store, not only do we tend to spend more than the value of the card but also 34 percent of us either lost their gift card, let it expire, or found that the store was gone.

After one year, 78 percent of all gift cards were redeemed (2019):

Supply

On the supply side, the incentives vary. Because those unredeemed gift cards become an accounting liability–something that belongs to others–retailers have to be sure they have the “cash” to redeem them. Then though, after as little as a half a year but usually longer, they become breakage income/revenue. During July, 2024, according to MarketWatch, Starbucks had a whopping $196.1 billion in breakage revenue.

It makes sense that income with a massive profit margin is attractive. However, suppliers want us to visit their stores.

Our Bottom Line: Deadweight Loss

And finally, with gift cards, I love to return to the deadweight loss of a present.

According to University of Minnesota Professor Joel Waldfogel, we don’t want many of the holiday gifts our friends and relatives give us. The result (he says with a bit of smile) is an “orgy of value destruction.” When you dislike (and never wear) the $35 scarf Aunt Betty gave you, its worth sinks to $10. This “mispricing” (aka deadweight loss) could have been corrected by a gift card.

Returning to where we began, I better buy that book at Barnes & Noble.

My sources and more: Always interesting, Zachary Crockett (now with Freakonomics, previously The Hustle), is a dependable source of quirky economic examples. So, when I noticed his gift card post (probably a repost), I took a look. Then, the ideal complement, Bankrate had more recent data.