|
|
| FYI |
Articles with sensitive information or view points (such as career
advice) are shielded from the public and search engines, so you have to
log-in as a registered user in order to see them. (Alternatively,
use guest account for viewing: u=guest, pw=hua-lian).
|
|
|
|
Gift Cards - the biggest scam of all
|
 |
|
Written by Wei-Jing Zhu
|
|
|
|
In recent years we see the proliferation of Gift Cards, whether by credit card companies, department stores, or chain stores such as Gap, HomeDepot, etc. Most people think it a good idea (the convenience over giving gifts that will be returned), and few realize that this is a big scam over ordinary consumers.
The basic concept in finance: liquidity, is at play here.
First of all, we all know that a bond that matures (become cashable) a year later for $100 is not worth $100. The present value will have to discount at least the growth aspect, (one year of interest).
Then there is the aspect of risk for a bond to fail and not be paid at all, as in the case of low grade corporate junk bonds. So the value will need to be further discounted by a risk premium, sort of the insurance you would need to pay.
Now a gift card is even worse, by having further elements listed below.
- You have to purchase at the particular store. So the restriction will mean great reduction in liquidity. If you never shop at Gap, and are given a Gap Gift Card, then it is practically worth nothing.
- Even if you shop there every day, there is the cost of inconvenience of having to remember to bring the card, and if you forget to use the card when you pay for items (very easy to forget), then you need to remember to do it again.
- The restriction by the store will mean that you are stuck to buying a limited set of products. So an Amazon $100 may be worth more than a BestBuy $200 card, simply because BestBuy stuff are over-prices, and you can likely find good deals on stuff that are available at Amazon but not at BestBuy.
- Finally, since you can't exchange for cash, even if you are given a $100 gift card at a high end furniture store, where the lowest item is priced at $500, your gift card is nothing more than a worthless coupon.
- Let us not forget that the business can go out of business in these tumultuous times. Given that you may not use your card in several years, the business can be out and your card will definitely be worth nothing.
Now you know why some companies sells their gift cards at 80% of the face value. Given that most businesses markup the price of an item significantly over its actual worth, I would estimate that a gift card to worth only 40% - 50% of the face value, even for really good companies. For places that I don't shop, their gift card would be valued at 10% - 20% of the face value to me.
So teach your children to be money smart, not just from scams that we all heard of, but be wary of new scams by legitimate businesses. This gift card idea has certainly allow many companies to rake it in, even when most of the consumers are left in the dark.
Only registered users can write comments.
Please login or register. Powered by AkoComment 1.0 beta 2! |
|
|
|
Home 
