We should look gift cards in the mouth

Dick Smith Electronics, that venerable merchant of gadgetry and geekery, entered receivership this week. It's terrible news for the staff and shareholders, but will presumably make no difference whatsoever to the private equity firm that made a motza out of flipping the business.

That's 21st century capitalism, folks!

The biggest impact for most Australians, though, will be for anyone who scored a DSE gift card for Christmas, or has put down some cash against a lay-by. Whether or not they'll be honoured is unclear -the administrator Ferrier Hodgson says not, but they may not have the last word on it, given various consumer-protection regimes. (Watch this space was the advice when I spoke to NSW Fair Trading about this on the radio this morning.)

Regardless of what happens with the Dick Smith situation, though, it's a reminder of something that's worth bearing in mind whenever Christmas or birthdays come around: gift cards are a terrible idea.

At the risk of seeming like a huge ingrate to anybody who's ever bought me one, the fact is that gift cards exist for one reason and one reason only: because some of us feel crass simply putting money in an envelope.

Gift cards offer a relatively elegantly packaged item that can be placed under the tree on Christmas morning, and handily, you generally don't even need to buy a separate card.

They do, though, prove that you cared enough about the person to go into a brick-and-mortar retailer and hand over your cash to an intermediary instead of handing the cash over directly.

They're convenient for us, and also for the recipients, who buy what they actually want instead of having to pretend we nailed it. They also allow a little control to be exercised - if you give somebody a bookshop gift card, they'll have a degree of difficulty blowing the money on lollies or booze.

Other than that, though, all the benefits would seem to lie with the retailer. They get the cash upfront for a guaranteed sale, as they're generally non-refundable. And often gift cards simply sit in our sock drawers unspent, which means the seller literally makes money for nothing.

Even when we do use them, there's just about always either a tiny remaining balance that we don't bother to spend, which ends up as pure profit to the retailer; otherwise, we can soak the remaining balance up by buying something that costs more, meaning they make extra money. It's a win-win.

What seems most outrageous about these notionally kind gifts, though, is the adoption of expiry dates. In effect, the shop gets to simply forget about its debt if we don't get around to collecting on it quickly enough. Just try that on any other category of debt and see how far that gets you. But no - for some reason, gift card sellers get to impose special, self-serving conditions which mean that at the end of the following year, they just get to keep the money. Merry Christmas, retailers!

This practice is indefensible. Thanks to inflation, a $50 gift card is almost always worth less by the time it's spent than it was when it was bought. And in the meantime, it's been earning interest for the retailer. Why on earth shouldn't they have to honour them for as long as humanly possible?

Given all this, I can certainly see why stores push gift cards so enthusiastically. But for consumers, they seem a dreadful option.

What can be done? At the very least, they should probably be renamed 'unsecured creditor cards', if the Dick Smith administrators' argument prevails. The terms and conditions should perhaps be made much more explicit, and consumer protection legislation may need to be beefed up.

One suggestion doing the rounds on Twitter today would see gift card payments kept in a trust fund so that they were protected from being counted as an asset for the retailer until they had been spent. That seems a reasonable approach, and is probably in line with what we expect when we give money for gift cards - that it'll be treated like cash by that retailer.

Some common conditions even specify that they'll be treated like cash in that they won't be replaced if lost, which surely means they should also be treated like cash in that the money can't magically disappear just because the person you got it from has financial difficulties.

But unless authorities step in and change the rules, or we stop buying gift cards in an effort to exert pressure on retailers, nothing will change.

The best solution may well be for us to stop kidding ourselves that gift cards are any more classy than putting cash in an envelope with a little note saying, "Thought you might want to buy yourself a video game."

Cash isn't the most thoughtful of gifts, I suppose, but any concerns about a perceived lack of effort can, I find, be quickly erased by the fact that you have a bunch of cash sitting in your hands.

Unlike Dick Smith, as we now know. So let the company's woes be a lesson to us all. There's a good chance that when you buy a gift card, it will end up being only a gift for the retailer.