The next time you receive a gift card, don’t save it for a special occasion — and don’t toss it in a drawer and forget about it. Use your card as soon as possible, because otherwise you’re providing the company with an interest-free loan.
As financial blogger JP Koning explains:
Starbucks has around $US1.6 ($2) billion in stored value card liabilities outstanding. This represents the sum of all physical gift cards held in customer’s wallets as well as the digital value of electronic balances held in the Starbucks Mobile App.* It amounts to ~6% of all of the company’s liabilities.
This is a pretty incredible number. Stored value card liabilities are the money that you, oh loyal Starbucks customer, use to buy coffee. What you might not realise is that these balances simultaneously function as a loan to Starbucks. Starbucks doesn’t pay any interest on balances held in the Starbucks app or gift cards. You, the loyal customer, are providing the company with free debt.
I’m guessing a lot of people don’t care that their Starbucks gift card or app balance functions as an interest-free loan — which is exactly what Starbucks (and similar retailers) are hoping for. If you put money on your Starbucks app and forget to spend it, or if someone gives you a Starbucks card and you never use it, that’s money that’s gone to Starbucks without them having to give you a product of equivalent value in return.
Same with all of the tiny balances left over on gift cards after you try to buy something that’s just under the gift card value so you don’t have to pay cash out-of-pocket. That’s cash you’re choosing to give back to the company; a forgiven loan, in other words.
And sure, sometimes it doesn’t make sense to use up every cent of a gift card if that means paying out-of-pocket at a retailer you rarely visit to buy a product you don’t really want or need. In that case, the better option might be to sell your gift card to someone else (just like real lenders do with real debts).
In short: use your gift cards as soon as you get them. Otherwise, you’re hanging on to an interest-free IOU with an expiration date — and that’s the kind of loan you want to call in as quickly as possible.