The financial fish-hooks of gift cards

Still haven't tackled your Christmas shopping? As you elbow your way through the jostling crowds and crammed aisles, try heading for the gift card station.

This shrine of convenience shines forth as a rescue beacon for the desperate, the uninspired, and the downright lazy.

Electronic gift cards are the number one present in the United States and Kiwis are catching on fast, with sales doubling year-on-year.

Unsuprisingly, they peaked at record highs on Christmas Eve last year as frantic shoppers realised they hadn't bought presents for their second cousin, Auntie Muriel, or heaven forbid - the wife.

Nothing says "I don't really know you/forgot to get you anything" quite like a generic plastic card loaded with a few bucks. But even casting that aside, there are a few financial fish-hooks to look out for.

Would you actually be better off sticking with giving cold, hard cash?

New Zealand's gift card king Roger Smith doesn't think so.

Smith is the country manager for Epay, which more or less runs the show here after buying out its rival Ezi-Pay last month.

"Cash is probably seen as even lazier than a gift card, right?" he says.

"At least with a gift card, you've shown that person I've at least spent some time, somewhere, thinking about you and getting you something."

Let's take a closer look. Gift cards come in two main categories - "open loop" and "closed loop".

The former refers to products like Visa's Prezzy Card, which can be loaded up with cash and spent just about anywhere, including online.

The Prezzy Card quite rightly describes itself as "the perfect gift"- a gift for Visa executives, that is.

The card itself costs $5.95, and assuming you get it online, another couple of bucks for postage and handling and a credit card fee of 1.5 per cent.

Suddenly you've thrown away $10 which could have actually gone towards a present, instead of diverting more Christmas cheer to a giant global payments company.

One of the Prezzy Card's few redeeming features is the ability to register it online in case it gets lost or stolen.

Bear in mind that some open-loop style cards are more open than others. You'll get a rude surprise if you try and redeem a Westfield shopping mall card at one of the dozen or so stores that won't actually accept it, for example.

The closed-loop cards make a bit more sense. Although they're shop-specific, consumers are spoilt for choice with more than 90 retailers now on board.

Retailers Association chief executive John Albertson says the gift card stations have helped broaden the channel of distribution.

But there's a few other reasons why shopkeepers have taken to cards with such enthusiasm.

All the cards that get lost or forgotten about each year become pure profit, which the industry calls "breakage". Expiry dates tend to be in the 12 month range, but it varies, so make sure you spend them as soon as possible.

In this respect gift cards are better for consumers than the old paper gift vouchers, says Albertson - you can usually draw down the balance in chunks instead of having to spend it all in one go.

Again, watch out for sneaky exclusions. One devoted girlfriend was left fuming when she bought her man a $500 Hunting & Fishing gift card for a new rifle - only to find out that bizarrely, guns and ammo weren't actually included.

And remember the outrage when struggling bookstores Whitcoulls and Borders made customers pay double to redeem their vouchers before the companies were bought out?

In the event that a shop goes under, all a gift card earns you is a place in line with all the other unsecured creditors. It's not exactly a big risk, but certainly possible.

Lastly, there's the fact that you can run the balance down, but you can't get cash as change.

That means unless people spend the exact worth of the card, they're either wasting a few bucks in "breakage", or being forced to spend extra money on their own gift.

Trade Me reckons it doesn't see much of a post-Christmas spike in voucher listings, which is a good sign.

"We know gift cards are a popular gift but it seems most people hit the mark, so there isn't a lot of reselling going on," a spokesman says.

And those people who do get rid of unwanted gift cards create the perfect opportunity to become the ultimate Christmas scrooge.

We found $1500 worth of Michael Hill gift cards being flicked off on Trade Me for $1200, or 20 per cent off. A $100 Rodd & Gunn voucher was on sale for $75, and there were heaps of other discounts in the 10-15 per cent range.

The obvious traps to watch out for would be looming expiry dates and dodgy sellers running down some of the value beforehand.

Even brand new, the likes of iTunes vouchers are often discounted by 10 or 20 per cent, giving you more beats for your bucks.

But Smith's got the most overwhelmingly convincing argument in favour of buying gift cards this year:

"It gives people the opportunity to shop and buy something they actually want, rather than end up with drawers and cupboards full of stuff they've been given and don't use."

There's nothing worse than being burdened with yet another awkward gift that you have to hurriedly put on the mantelpiece whenever the giver comes visiting.

In fact, a recent survey - admittedly conducted by the industry - suggested 72 per cent would prefer a gift card to an actual present.

Clearly, kiwis are pretty woeful at guessing what their friends and loved ones are into.

Case in point - most people have to work pretty hard at acting delighted as they unwrap the obligatory Christmas socks.

But what did one colleague, given the pick of the whole range of gift cards, end up treating himself to?

A nice new pair of socks, of course. There really is no accounting for taste.