Why Gift Card?

OK, let’s cut the chase – this is why I think gift cards are not so good for consumers:

• Possibility of not using them: 6%, as noted in a recent Today coverage. This could be due to losing it, forgetting about it, and not liking the card-related products. That’s like consumers donating millions to the industry. According to the Today coverage, $100B gift card sales with $6B unused + most popular gifts, 5 years running. I remember a time where I had an w’aay extendedholiday trip only to realize a lot later that I had an outdated rebate check.
• Tie Consumers to the Stores/Products: Gift card issuer should sell them for lower value. Companies lover the, because it ties consumers to those products/companies (e.g. Lowe’s gift cards mean that recipients need to go to the store to get those money cards used). In addition, to use the full benefits of the card or to maximize the card’s value, one need to get products that are higher price that the cards’ values. For instance, if you have a $25 Target gift card, ideally, you’d spend on something that is $25, but c’mon, seriously, find something that is $25 … with sales taxes plus nd while you’re there, you might as well buy those other stuff.
• Why not Give Cash?: New taboo? Behavioral – as in most Americans like to put those on the cards? I like the subtitle Daniel Gross put on his article: “They’re the best insult money can buy.”

Currently, I have a $10 gift certificate from Kohl’s (valid after Christmas) and a $10 off coupon for gift cards sold at Albertson’s. I’m likely to use the Kohl’s gift certificate … and the Abertson’s – guess what? The cheapest gift card is a $25 ones. I’ll use the Albertson’s for something that’s I’ll use anyways (Hint: not Starbucks one).

Basic Yet Best Investment Advice

When I mention to people what I do for living, I’d frequently get questions on best places to invest nowadays. To that, I’d usually say:

TIME OUT!

So, Where’s the Best Place to Invest?

On my second day of my new job, I was asked this question due to people’s expectation of my expertise int his area. In this type of economy, those who asked this type of questions must be in the minority. In fact, they aren’t supposed to ask this question given that they are surviving this economy. Perhaps that guy who posed the question just won a lottery.

He laughed out loud when I mentioned to him”save it”, proclaiming that I am Republican. I don’t even vote …. neither can he. Thinking back, I may have provided the second best short answer. The best answer will be provided later on.

Two important things with regards to tackling the “where to invest?” question: knowing people’s background and credit card debt puzzle.

When providing advice (note: not advise), financial planners need to know the whole picture. How much money are they talking about? What are their financial situations? i.e. how much debts, assets (financial and physical). What are their financial plans – short term and long term? What are their sources of income? What are their health conditions? This include on whether they plan to purchase another house, live in a retirement housing, early retirement, paying tuition for children, etc. Only then, advice may be provided and a solid financial plan may devised.

The credit card debt puzzle is explained by the situation where people have debts and at the same time, liquid asset. The intriguing part of this is that these individuals would rather be in this situation than to pay off their debts with interest. Teylukova and Wright (2008) observed:
27% of U.S. households in 2001 had credit card debt and liquid assets both in excess of $500; and the median household in this group revolved around $3,800 on their credit cards even though they had $3,000 in the bank”

So, if you happen to have some cash that you think ought to be used for investment, consider paying off your debt – credit card, education, car loans, etc. An 8% interest on your credit card debt vs. investment that you are not even sure going to be have profits or gains in this kind of market – which one should you choose?

Reference

Teylukova, I., & Wright, R. (2008). A model of money and credit, with application to the credit card debt puzzle. Review of Economic Studies, 75(2), 629-647.