Best Buy is Smiling

Americans spend an incredible amount of money on gift cards, especially during the holiday season. $80 billion worth of gift cards were purchased in 2006. According to the financial-services research firm TowerGroup, however, roughly $8 billion spent on gift cards in 2006 will never be redeemed, a “a bigger impact on consumers than the combined total of both debit- and credit-card fraud,” the organization said. As Zach warned us in his seminal post on the issue, this is a tremendous gift of free money to companies such as Home Depot, Limited Brands and Best Buy, nearly negating gift cards’ positive impact on the “deadweight loss of Christmas.” The Freakonomics authors, Stephen J. Dubner and Steven D. Levitt, came to basically the same conclusion in last Sunday’s New York Times. Only 30 percent of people who receive gift cards use them in the first month, the authors report, and 19 percent of people who received gift cards in 2005 never used them.

The solution? The Freakonomics guys say if you can’t think of something personal to give someone, give cash. That is, unless it’s considered an insult in your circle of friends, or you feel like playing Santa to The Gap.

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