Every year, consumers in the US alone buy $170 billion in gift cards.
Every year, approximately $3 billion of that value is never redeemed.
That $3 billion goes straight to the issuing company’s revenue line. It’s called breakage. It’s the single most profitable product most retailers sell. Zero cost of goods. 100% margin. Quiet collection.
Here’s how it works. You buy a $50 gift card. The store records a liability of $50. Eventually, if you redeem it, they deliver $50 of goods (at their actual cost of maybe $20). If you don’t redeem it, or only redeem $47 of it, the unredeemed amount converts to pure revenue after a set period (usually 2 to 5 years, depending on jurisdiction).
The industry knows exact breakage rates. Starbucks reports 9% breakage in their annual report. Restaurant chains report 15 to 20%. Smaller retailers report up to 30%.
When you give someone a gift card, there’s a one-in-five chance (on average) that you gave the company money in exchange for nothing.
Rule
Gift cards are not gifts. They’re corporate revenue disguised as convenience. Cash is always better. It keeps full value, can be spent anywhere, and never expires.
Action for this week
Check your wallet, drawers, and email for unused gift cards. Redeem them this month. Any one you can’t use, sell on secondary markets like Cardtonic or Raise. Better to get 85% back than 0%.
Next week
When to stop saving and start spending more.
Know someone who loves giving gift cards? Forward this.
P.S. The most ethical form of gift card is a bank-issued Visa or Mastercard gift card. It can be used anywhere. The breakage rate drops to 2%. Still not zero, but closer.
Decide Your Money
Not how much you earn. How well you decide.
Decide Your Money Educational content only. Not financial advice. Decide Your Money is not a licensed financial adviser. Speak with a qualified professional before making financial decisions.