Are gift cards ultimately a waste of money?

According to a survey from the National Retail Federation, gift cards top people's holiday wish lists.
According to a survey from the National Retail Federation, gift cards top people's holiday wish lists.
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­If Alvin the Chipmunk were to beg for his beloved hula hoop these days, there's a decent chance he wouldn't find one wrapped beneath the Christmas tree. Instead, he might be more likely to receive a much smaller plastic item -- a gift card. That way, the giver might insist, Alvin could select the perfect hula hoop that would make all of his holiday dreams come true.

The rise of the gift card has been a stress reliever for the time-crunched holiday shopper and the ultimate detriment to gift-giving etiquette for others. On the one hand, gift cards offer a one-stop-shopping solution that gives recipients the freedom to pick out what they'd like. On the other hand, around a quarter of people polled by the National Retail Federation consider gift cards to be thoughtless presents.

But whether or not you agree that it's bad manners to give a gift card to someone, their popularity is undeniable. The growth of the gift card market -- including sellers from retail stores, restaurants, banks and credit card companies -- took off beginning in 2002 [source: Reuters]. Now, gift cards are the most requested retail holiday present among both men and women, with almost 55 percent of people reporting that they want one [source: National Retail Federation]. Sales figures indicate that those gift wishes will likely come true. In 2007, Americans spent an estimated $97 billion on gift cards, and experts expect that number to grow in 2008 [source: Nolan].

­­The beauty of gift cards from a marketing perspective is that they make the arduous task of holiday shopping much easier. No more sifting through racks of sweaters or hunting down the perfect gadget; simply walk up to the register, pick a denomination and pay. Evidently, that's a pretty strong selling point, since more than two-thirds of holiday shoppers plan to purchase at least two gift cards for people on their list [source: Associated Press].

If you think of gift cards hold the ultimate key to retail freedom, think again. True, they may save you a few minutes in the mall, but they probably aren't saving you -- or their beneficiaries -- any coin.