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How Every Gift Card Is an Interest-Free Loan to a Corporation · The Missing Middle Podcast

• 0:00
  SPEAKER_01: It's officially gift card season.
• 0:02
  SPEAKER_01: Restaurants are rolling out their buy$50, get$10 bonus card deals, and Costco will sell you$100 worth of restaurant gift cards for$80.
• 0:10
  SPEAKER_01: When everyone's hunting for value, that feels like free money and also an easy what could possibly go wrong type of gift.
• 0:16
  SPEAKER_01: But a recent ports newsletter put it in a way that I can't stop thinking about that every gift card is a loan from you to a store.
• 0:22
  SPEAKER_00: And the store has done the math on that loan long before you have.
• 0:26
  SPEAKER_00: After all, they wouldn't offer these deals if they thought they'd be money losers.
• 0:30
  SPEAKER_00: So part of that is getting you in the door in January, but part of it is also betting that some of the money that you put on these cards never gets spent at all.
• 0:39
  SPEAKER_01: So today, in a year when Canadians are stretching every dollar, are gift card deals actually a good deal?
• 0:45
  SPEAKER_01: And who's really winning when that card ends up in the junk drawer?
• 0:49
  SPEAKER_01: Classonomics, hosted by Sabrina Mado and Mike Moffat.
• 0:54
  SPEAKER_01: Mike, let's start with a sense of scale.
• 0:56
  SPEAKER_01: How much are Canadians actually putting on gift cards?
• 0:59
  SPEAKER_00: I think it's more than most people think.
• 1:01
  SPEAKER_00: It's certainly more than I thought.
• 1:02
  SPEAKER_00: Uh the Retail Council of Canada and Leger survey Canadians every fall about their holiday shopping.
• 1:08
  SPEAKER_00: Uh this year, uh, people are planning to spend just over$900 on gifts, and gift cards are expected to make up about 16% of that.
• 1:16
  SPEAKER_00: So you do the math, that's about$150 per person on gift cards alone, just for the holidays.
• 1:22
  SPEAKER_00: And they're getting more popular every year.
• 1:25
  SPEAKER_00: Last year, 47% of Canadians said they plan to buy gift cards, and that was up from 42% the year before.
• 1:32
  SPEAKER_00: So, you know, we're reaching majority territory here.
• 1:34
  SPEAKER_00: And over a full year, that adds up fast.
• 1:37
  SPEAKER_00: Estimates are all over the place, but one industry research firm, PayNXT360, puts Canada's gift card market at close to$9 billion US every single year.
• 1:49
  SPEAKER_00: And a growing part of that is that these uh gift cards have moved well beyond plastic on Iraq.
• 1:56
  SPEAKER_00: Uh, most of the time they're digital, they're on apps, they auto-reload.
• 2:00
  SPEAKER_00: For a lot of chains, they're wired right into the loyalty program.
• 2:03
  SPEAKER_00: So, you know, you're tying your gift cards to your loyalty points, but you know, we can talk about that in a few minutes.
• 2:08
  SPEAKER_00: Now, Sabrina, the part that surprised me is who's buying the gift cards and for whom.
• 2:13
  SPEAKER_00: Now, it used to be that gift cards were just that a gift.
• 2:16
  SPEAKER_00: It was right in the name.
• 2:18
  SPEAKER_00: Now, people are buying them for themselves.
• 2:20
  SPEAKER_00: Uh, in the US, a Blackhawk network, one of the big gift card distributors, found that 56% of consumers plan to buy gift cards for their own use this year.
• 2:30
  SPEAKER_00: That's up from 31% the year before.
• 2:32
  SPEAKER_00: That's a pretty massive jump.
• 2:33
  SPEAKER_00: And yeah, that strikes me as a bit odd.
• 2:35
  SPEAKER_00: You know, why would anyone buy themselves a gift card rather than just paying for their purchases on their deb or credit card?
• 2:41
  SPEAKER_01: Yeah, that's a really interesting increase.
• 2:43
  SPEAKER_01: And it surprised me by how much.
• 2:45
  SPEAKER_01: But then I think about how my own habits have changed.
• 2:48
  SPEAKER_01: And I've bought myself some gift cards over the past year.
• 2:51
  SPEAKER_01: So for many people, it's a budgeting hack.
• 2:53
  SPEAKER_01: So you put$100 on a grocery or coffee card at the start of the month, and that's your limit.
• 2:58
  SPEAKER_01: It's the same instinct as this cash-stuffing envelopes trend that's all over TikTok, which is actually pretty old school in that you take out cash, you put it in an envelope, and then that's your budget for the month.
• 3:09
  SPEAKER_01: The industry itself calls this self a defensive spending strategy.
• 3:13
  SPEAKER_01: And when the people selling the cards are pitching them as guardrails for stretched budget, that tells you how stretched people actually are.
• 3:20
  SPEAKER_01: Um, it's also the households with the least room doing it.
• 3:23
  SPEAKER_01: So Black Hawk also found that the people buying gift cards for their own use mostly have household incomes under$50,000 a year in the US.
• 3:32
  SPEAKER_01: And that same story goes on the gifting side.
• 3:34
  SPEAKER_01: In last year's RCC survey, 57% of Canadians said holiday shopping felt stressful, which is the highest it's been in four years.
• 3:43
  SPEAKER_01: And at the same time, gift card plans went up.
• 3:46
  SPEAKER_01: In the US, nearly half of Gen Z and millennial shoppers said they'd give gift cards instead of clothes because of price worries.
• 3:52
  SPEAKER_01: And so it's this cost of living story with a bow on it.
• 3:55
  SPEAKER_01: And the irony is the people with the least financial slack are the ones handing bank companies interest-free loans.
• 4:01
  SPEAKER_01: And from my own perspective, I'm a user of those Costco gift cards where you can get an Uber gift card for$80, but it's worth$100, or for your meal delivery company and you get that extra 20% and it feels like you're saving money.
• 4:15
  SPEAKER_01: Well, you are saving money as long as you're actually using them.
• 4:18
  SPEAKER_01: So I'd love you to walk us through what actually happens to that money, though, once it's on the card, because I think most people assume a$50 gift card is just a$50 sale for a brand.
• 4:27
  SPEAKER_00: Yeah, I'd be happy to, but I'm gonna have to commit a professional sin here.
• 4:31
  SPEAKER_00: Uh business schools, where I've spent almost all of my career, they're divided into area groups.
• 4:36
  SPEAKER_00: And those area groups can be a little bit protective of their turf.
• 4:40
  SPEAKER_00: Uh, I spent my career in the economics and public policy group, uh, but now I'm gonna, Professor Mike is uh going to move over uh for the time being over to managerial accounting and wear my accounting hat.
• 4:51
  SPEAKER_00: And hopefully we don't get too many uh angry emails uh from some of my colleagues over there.
• 4:57
  SPEAKER_00: So this is what accounting professor Mike has to say about that: that when you load$50 onto a card, the store gets your cash right away, but it's not counted uh as a sale.
• 5:07
  SPEAKER_00: Uh instead, on the company's balance sheet, assets go up by$50, but liabilities uh go up by$50.
• 5:15
  SPEAKER_00: As what's happening here is the store effectively owes you that$50 uh because you haven't received anything in return for it yet.
• 5:23
  SPEAKER_00: So we can think of it almost as you loaning the store$50.
• 5:27
  SPEAKER_00: So does that make sense so far?
• 5:29
  SPEAKER_01: Yeah, totally.
• 5:30
  SPEAKER_00: So we've got assets up$50, liabilities up$50.
• 5:34
  SPEAKER_00: It's all kind of netting out.
• 5:35
  SPEAKER_00: But here's where things change.
• 5:37
  SPEAKER_00: You know, let's say a bank makes a loan to a store.
• 5:40
  SPEAKER_00: You can be really sure that they're not going to forget about that.
• 5:43
  SPEAKER_00: Uh, you know, that kind of loan is not gonna go away.
• 5:45
  SPEAKER_00: But when it comes to a gift card, a lot of us do forget about it.
• 5:48
  SPEAKER_00: You know, either the gift card doesn't get used at all, it gets lost, or only some of the money gets spent on that card.
• 5:54
  SPEAKER_00: It just contains a balance until the end of time.
• 5:57
  SPEAKER_00: This is what uh accountants call breakage.
• 6:00
  SPEAKER_00: And companies can take all the data that they've collected about us for years, build these really sophisticated models uh using some of those biz school grads over in the management science area group, and they could calculate what percentage of these funds will never get spent, and then basically book that as revenue.
• 6:19
  SPEAKER_00: It's no longer a loan, it's almost uh a gift.
• 6:22
  SPEAKER_00: In other words, that money on your gift card goes from loaning Walmart money to gifting your money to Walmart.
• 6:29
  SPEAKER_00: Because, as we all know, you know, the Walton family needs even more of your money.
• 6:33
  SPEAKER_01: So it's a gift card in more ways than one to some unexpected recipients.
• 6:38
  SPEAKER_00: Yeah, absolutely.
• 6:39
  SPEAKER_00: The the the gift doesn't uh go to your uncle or whatever, it goes through the the Walton family.
• 6:45
  SPEAKER_00: And the the thing about this is the company doesn't actually have to wait for you to forget about that gift card that your Aunt Susan gave you, you know, because big chains typically book a little bit of that expected breakage every time someone spends on a card based on how much they predict will never come back.
• 7:00
  SPEAKER_00: So they can start to write some of this uh off or book it as revenue right away.
• 7:06
  SPEAKER_00: So a gift card program does three things for a retailer.
• 7:10
  SPEAKER_00: First, it gets your money early, so it can just kind of sit on that.
• 7:14
  SPEAKER_00: Second is it uh keeps whatever you forget.
• 7:16
  SPEAKER_00: And third is when you do come back, you tend to spend even more than the gift card is worth.
• 7:22
  SPEAKER_00: Blackhawk found that nearly 60% of American shoppers go over the card's value when they redeem it by an average of$73.
• 7:30
  SPEAKER_00: So it tends to get you to spend more than you probably otherwise would have.
• 7:34
  SPEAKER_01: And quite a bit more.
• 7:35
  SPEAKER_01: That's not, you know,$2 or$5.
• 7:37
  SPEAKER_01: $73 is pretty significant, which is where the stores are secretly banks argument comes in.
• 7:42
  SPEAKER_01: Surewood News made that case about Starbucks, and it might be the purest example of the entire model.
• 7:48
  SPEAKER_01: So, Mike, I'm curious why Starbucks?
• 7:51
  SPEAKER_00: Well, Starbucks took the gift card and turned it into a deposit account.
• 7:54
  SPEAKER_00: Uh, most people don't think of the Starbucks app as a gift card, but that's what it is.
• 7:59
  SPEAKER_00: You preload money and pay from the balance, and the rewards program is what pulls the money in.
• 8:04
  SPEAKER_00: As of 2024, you earn stars twice as fast by loading money into the app as by paying with a credit card.
• 8:10
  SPEAKER_00: Now, that's exactly what a bank does.
• 8:12
  SPEAKER_00: It pays you interest to attract deposits.
• 8:15
  SPEAKER_00: Uh, but instead of a bank paying you in small little interest payments, Starbucks pays you in lattes.
• 8:21
  SPEAKER_00: And it was funny, when we were planning uh this episode, I was kind of thinking, oh, I don't use gift cards, but you know, surprise, surprise, I'm one of the biggest users of the Starbucks app.
• 8:31
  SPEAKER_00: Everyone knows how much coffee I drink.
• 8:33
  SPEAKER_00: So, you know, I'm one of these uh folks who have been lending Starbucks money uh for years or putting my money into the bank of Starbucks.
• 8:42
  SPEAKER_01: Somehow your high caffeine intake does not surprise me at all, Mike.
• 8:45
  SPEAKER_00: Yeah, and well, I in my defense, there are so many people like me engaging in this behavior.
• 8:51
  SPEAKER_00: It's not just me.
• 8:52
  SPEAKER_00: And because of that, the deposits in the bank of Starbucks are huge.
• 8:56
  SPEAKER_00: As of the 2025 fiscal year, Starbucks owed customers about$1.75 billion with a B, US dollars in card balances and loyalty points.
• 9:05
  SPEAKER_00: And its latest filing actually has it above$1.8 billion.
• 9:09
  SPEAKER_00: Now, if we go back to 2002, the company CFO reportedly called the card program a$20 million interest-free loan from our customers.
• 9:18
  SPEAKER_00: Well, it's 90 times larger now than it was back then in 2002.
• 9:23
  SPEAKER_00: And Market Watch pointed out that uh this kind of so-called bank of Starbucks has more in deposits than a typical uh community bank uh holds in deposits.
• 9:33
  SPEAKER_00: So it's it's absolutely massive.
• 9:35
  SPEAKER_00: But it's a bank that has none of the obligations of a bank.
• 9:38
  SPEAKER_00: A real bank pays interest in cash, so it has to hold capital, your deposits are insured, and so on.
• 9:45
  SPEAKER_00: You can walk in and take your money out.
• 9:47
  SPEAKER_00: You know, with Starbucks, I can't kind of walk in and go, okay, I want my money back from the app.
• 9:51
  SPEAKER_00: You know, the only thing you can withdraw is a latte, or in my case, you know, a grande dark rose.
• 9:57
  SPEAKER_01: I don't use the Starbucks app, but I am a bad person with gift cards in that I have a little drawer and a pile of them.
• 10:04
  SPEAKER_01: And a lot of them have not been used.
• 10:06
  SPEAKER_01: And I've had them for six months, a year, two years, or there's balances remaining on them.
• 10:10
  SPEAKER_01: And I'm always thinking, okay, use these, take them out of the drawer, and somehow they just end up back in the drawer.
• 10:17
  SPEAKER_01: But there's also this stat that made my jaw drop on the Starbucks front.
• 10:20
  SPEAKER_01: An economist writing in the Daily Economy worked out that the breakage was about 8% of Starbucks's operating profit in fiscal 2025.
• 10:28
  SPEAKER_01: Is that real?
• 10:29
  SPEAKER_00: That that is.
• 10:30
  SPEAKER_00: It's a it's a massive amount of uh profit to be made here, you know, 8% just from people forgetting about their Starbucks card.
• 10:38
  SPEAKER_00: Now, there is a kind of caveat here.
• 10:40
  SPEAKER_00: Uh, that profit was 222 million against about 2.9 billion in operating income.
• 10:46
  SPEAKER_00: That gets you the 8%.
• 10:48
  SPEAKER_00: But 2025 was a rough year for Starbucks.
• 10:51
  SPEAKER_00: It, you know, spent heavily, it was closing stores, it was restructuring.
• 10:55
  SPEAKER_00: So its operating income in that year was about half of what it normally is.
• 10:59
  SPEAKER_00: So in a more normal year, you're looking at 4%, not 8%.
• 11:04
  SPEAKER_00: But that's still pretty big because when you think about it, every other dollar that Starbucks earns, uh, they have to do something for that.
• 11:11
  SPEAKER_00: You know, and that comes with expenses, beans and milk and rent and wages added and so on.
• 11:16
  SPEAKER_00: Profit from breakage comes with none of that, none of those associated expenses.
• 11:21
  SPEAKER_00: It's about as close to pure profit as a business can get.
• 11:25
  SPEAKER_00: And Starbucks is just the company that shows its work in public filings.
• 11:29
  SPEAKER_00: Uh, pretty much every chain with a gift card program is running some version of this.
• 11:34
  SPEAKER_00: And many of these programs aren't nearly as transparent as Starbucks.
• 11:37
  SPEAKER_01: So, literally, just as you were going through that, I remembered I do have an unused Starbucks gift card that I forgot about into this moment.
• 11:45
  SPEAKER_01: It was sent to me last year.
• 11:46
  SPEAKER_01: And it's because it was an e-gift card.
• 11:49
  SPEAKER_01: So it's technically in an email with a code, and I don't use the app, and the email just disappeared into my inbox somewhere.
• 11:56
  SPEAKER_01: So after this episode, I need to go find that.
• 11:58
  SPEAKER_01: But that's exactly why the junk drawer keeps getting fuller.
• 12:01
  SPEAKER_01: Uh, bank rate has tracked this in the US every single year.
• 12:04
  SPEAKER_01: The average unused balance was$116 in 2021.
• 12:09
  SPEAKER_01: Then the next year it was$175, then$187.
• 12:13
  SPEAKER_01: And by 2024, it was$244.
• 12:17
  SPEAKER_01: So that's more than double in three years, right through a cost of living crisis, uh, and about$27 billion total when people are supposedly counting every dollar and every penny.
• 12:29
  SPEAKER_01: So when everyone's on a strict budget and worried about making rent, why on earth aren't people spending these?
• 12:36
  SPEAKER_00: Yeah, it's kind of weird and it kind of goes against the uh economist view of rationality.
• 12:42
  SPEAKER_00: Uh, this is a really kind of behavioral uh economics uh issue here.
• 12:47
  SPEAKER_00: And it really comes down to how our brains uh treat money uh that we really do kind of compartmentalize.
• 12:53
  SPEAKER_00: So the first is that we procrastinate on fun stuff, not just chores.
• 12:58
  SPEAKER_00: That a lot of times, and I'm I'm I'm one of the worst people for this, is uh that I'll often put off even fun things to the future, you know, kind of saving it uh for a special occasion.
• 13:09
  SPEAKER_00: And research has found the more time people have to use a gift certificate, the less likely they are to actually use it because they forget about it, they lose it.
• 13:18
  SPEAKER_00: Uh, and while legislation has stopped regular gift cards from expiring, it also means that because people know, oh, this gift card isn't going to expire, uh, that allows them to procrastinate even further.
• 13:31
  SPEAKER_00: The second reason is that gift card money feels like treat money.
• 13:35
  SPEAKER_00: Like we don't we we don't mentally account for it the same way.
• 13:39
  SPEAKER_00: We put it in a different mental envelope, like you were mentioning earlier.
• 13:44
  SPEAKER_00: People tend to be like me, they save it for something special.
• 13:47
  SPEAKER_00: And in a cost of living crunch, treats are usually the first things to go.
• 13:51
  SPEAKER_00: So the card sits there and it's waiting for a splurge that never feels justified.
• 13:56
  SPEAKER_00: You know, I uh I never feel like I've kind of earned that special treat.
• 14:01
  SPEAKER_00: And that's even more true if the gift card only covers part of the purchase.
• 14:05
  SPEAKER_00: If I go, okay, I've got this$50 gift card, but the thing I want at the store is$150.
• 14:10
  SPEAKER_00: And I go, well, I can't afford that hundred.
• 14:13
  SPEAKER_00: So the gift card never gets used at all.
• 14:16
  SPEAKER_00: And third, there's all kinds of frictions when it comes to using these cards.
• 14:20
  SPEAKER_00: You know, a card for one specific store, it's easy to forget.
• 14:23
  SPEAKER_00: And it's even harder to use if that store isn't on your way anywhere.
• 14:27
  SPEAKER_00: You know, almost a quarter of Canadians aged between 18 to 34 say they lose or misplace gift cards every year.
• 14:35
  SPEAKER_00: And when the balances on those cards get low, you know, they're often forgotten about entirely, right?
• 14:40
  SPEAKER_00: Because nobody's going to drive across town to spend$4.17.
• 14:45
  SPEAKER_00: But for the stores, those, you know,$4 here,$5 here,$3 here, that all adds up.
• 14:51
  SPEAKER_00: So for us, you know, we might not notice, but when they're aggregating that over tens of thousands or hundreds of thousands of customers, that is real profit for these stores.
• 15:01
  SPEAKER_01: Right.
• 15:01
  SPEAKER_01: And we know that millennials hold the most unused balances,$332 on average in the US versus$142 for Gen Z.
• 15:10
  SPEAKER_01: And that also tracks because there's busy careers, young kids, and a card for a restaurant across town from your old apartment, especially in Toronto traffic, isn't that easy to actually use.
• 15:21
  SPEAKER_01: Uh, but also mall gift cards are a perfect example of this friction problem.
• 15:25
  SPEAKER_01: They're a popular gift because they cover an entire mall.
• 15:28
  SPEAKER_01: So the sender thinks, oh, I'm giving my gift recipient a lot of options, but the big ones actually only work in person.
• 15:36
  SPEAKER_01: So for example, Cadillac Fairviews card can't be used online, and Oxford's e-gift cards actually have to be swapped for a plastic card at guest services before you can spend them.
• 15:45
  SPEAKER_01: That's a lot to ask when so much of our shopping happens on our phones in between meetings or after work.
• 15:51
  SPEAKER_01: You actually have to get yourself into a mall.
• 15:54
  SPEAKER_01: And malls are also fewer and farther between these days.
• 15:57
  SPEAKER_01: Visa and MasterCard gift cards have their own trap.
• 15:59
  SPEAKER_01: They're another popular option because they seem to offer a lot of different ways you can spend the money.
• 16:05
  SPEAKER_01: But once the balance drops below what you're buying, they're close to useless online.
• 16:09
  SPEAKER_01: So they go in that credit card field that you fill out.
• 16:12
  SPEAKER_01: And most checkouts won't let you split one across two cards.
• 16:16
  SPEAKER_01: So that last$11 or$20 can really only be spent in person, where you have to know your exact balance.
• 16:22
  SPEAKER_01: And then you have to ask the cashier to split the payment and take out multiple cards.
• 16:26
  SPEAKER_01: And a lot of people would rather not be that person holding up the line or just even bothering with it.
• 16:31
  SPEAKER_01: Uh like, you know, I think there's still this little stigma about, oh, can I split the payment between multiple cards?
• 16:36
  SPEAKER_01: So those balances just sit there and go to waste.
• 16:40
  SPEAKER_01: And the other thing about some of those gift cards is because when you don't use them, there ends up being a small fee to maintain the balance after years that then eats away at the balance that you haven't spent.
• 16:51
  SPEAKER_01: The last thing is the amounts haven't kept up either.
• 16:53
  SPEAKER_01: So gift cards are still mostly sold in around$25,$50, or$100 amounts.
• 16:59
  SPEAKER_01: And our sense of what a quote unquote normal gift card should be hasn't really moved with inflation.
• 17:06
  SPEAKER_01: So a$50 card used to cover dinner or a good sweater, now it often doesn't.
• 17:11
  SPEAKER_01: So you end up topping it up with your own money.
• 17:14
  SPEAKER_01: And even a gift card bought to cover an item's price, let's say a year ago, could actually be significantly underpriced by now, the way costs are rising in certain areas.
• 17:23
  SPEAKER_01: And this all brings us right back to the start where I was talking about gift card popularity being subtly tied to the cost of living.
• 17:30
  SPEAKER_01: Givers like those round numbers because they keep spending under control.
• 17:34
  SPEAKER_01: And that's backed up by Blackhawk, who found that three and four American shoppers say that gift cards actually help them stick to their holiday budgets.
• 17:43
  SPEAKER_01: On the other side, that fixed amount means the person receiving it often has to chip in to actually use it.
• 17:48
  SPEAKER_01: And that's exactly where the upspend retailers' love happens, even more so if it means people actually never use the cards.
• 17:55
  SPEAKER_01: So at the end of the day, Mike, the Costco deals, the bonus cards, loading up a card to stick to a budget, are these smart money moves or bad deals dressed up as good ones?
• 18:04
  SPEAKER_00: Well, some of them are genuinely good, uh, but with a catch.
• 18:07
  SPEAKER_00: You know, if you've got no debt and a hard limit stops you from overspending, there can be real value here, like those Costco deals, for instance, where you get$100 of restaurant cards for$80, you know, that's uh over 20% return.
• 18:20
  SPEAKER_00: That's better than anything your bank's going to offer you.
• 18:23
  SPEAKER_00: Uh, but that's, you know, only if you spend every dollar, if you were only gonna kind of planning on going out anyway.
• 18:29
  SPEAKER_00: But nobody publishes how many of those discounted cards get fully used.
• 18:33
  SPEAKER_00: And the restaurant's happy either way.
• 18:35
  SPEAKER_00: I mean, either you you don't cash it in and it's free money for them, or you do cash it in and maybe you top it up, or you weren't planning on going to the restaurant anyway.
• 18:44
  SPEAKER_00: So that's additional sales uh that they wouldn't have otherwise made.
• 18:48
  SPEAKER_00: Now, the bonus cards are even trickier because they're promotional.
• 18:52
  SPEAKER_00: Uh, they're by law one of the few gift cards that are allowed to expire.
• 18:57
  SPEAKER_00: And most of them you can't uh use them until January.
• 19:00
  SPEAKER_00: So you might get them as a Christmas gift or or before Christmas, uh, and then kind of forget about it until January, or when January comes around, you've forgotten about it, uh, and then you know it runs out a few months later.
• 19:12
  SPEAKER_00: But outside of a genuine discount, you know, parking money on a card is a worse deal than it looks.
• 19:17
  SPEAKER_00: You know, first you're giving up interest.
• 19:19
  SPEAKER_00: You know, that's money uh you could have in a savings account, that's money you could put in your TFSA, what have you.
• 19:25
  SPEAKER_00: If it's just sitting on a card, you're not earning anything for it.
• 19:28
  SPEAKER_00: And then the next problem is that the value of that card gets eaten away by inflation.
• 19:33
  SPEAKER_00: Uh the publication, the Daily Economy, had a great example of this.
• 19:36
  SPEAKER_00: Like if you bought a$25 Starbucks card a few years ago, uh or even a couple years ago, that might have bought you five drinks at five bucks a piece.
• 19:44
  SPEAKER_00: But now those drinks are six, seven dollars, you're only getting maybe four drinks, right?
• 19:50
  SPEAKER_00: But it's the same uh amount of cash, right?
• 19:53
  SPEAKER_00: So basically the value you've parked on that card got eaten away by inflation.
• 19:58
  SPEAKER_00: And the big one is that like if you have debt, uh like particularly if you have credit card debt, you'd be so much better off parking that cash on your credit card uh because you're probably paying something like 20% interest, right?
• 20:12
  SPEAKER_00: So you're basically, if by buying one of these cards, you're loaning uh a store, you're loaning Walmart or Starbucks or Target or Apple uh at zero percent, while at the same time paying MasterCard and Visa 20% on the money you owe them.
• 20:28
  SPEAKER_00: So it makes no sense.
• 20:30
  SPEAKER_00: Instead of giving your money, uh loaning your money to Apple at Starbucks, you know, pay down your MasterCard and Visa loan instead, and you'll be so much better off.
• 20:39
  SPEAKER_01: And that's not even the worst case scenario, because then there's the scenario where you don't just lose the interest, you lose the entire thing, which brings me to Hudson's Bay, if you want to explain this one, Mike.
• 20:48
  SPEAKER_00: Yeah, absolutely.
• 20:49
  SPEAKER_00: And it goes back to this idea of a gift card being a loan uh because you're loaning the store money.
• 20:54
  SPEAKER_00: But in this case, legally, it's an unsecured loan.
• 20:57
  SPEAKER_00: It's not backed by any kind of collateral.
• 20:59
  SPEAKER_00: And when a retailer goes under, the gift card holders are unsecured creditors, which you know puts you basically at the back of the line when it comes to getting debts paid off behind the lenders who are front of line have have actual collateral.
• 21:14
  SPEAKER_00: So when Hudson's Bay filed for creditor protection back in March of 2025, Canadians were holding about$24 million in Bay gift cards.
• 21:23
  SPEAKER_00: The company stopped selling them and set a deadline of April 6th to use them.
• 21:28
  SPEAKER_00: And after that, they were done.
• 21:29
  SPEAKER_00: So if you, you know, you or I or anyone else finds a Bay gift card uh lying around the house, you're not gonna be able to use it anymore.
• 21:36
  SPEAKER_00: And, you know, and this is this has always been a thing.
• 21:38
  SPEAKER_00: Like if you have gift certificates from Blockbuster Video from 20 years ago, you're not getting your money back on that.
• 21:44
  SPEAKER_00: Though, you know, they might fetch a few bucks on eBay as a vintage collectible, so maybe it's still worth something.
• 21:49
  SPEAKER_01: At least with Hudson's Bay, there's a deadline.
• 21:51
  SPEAKER_01: I'm thinking about gift cards even to local small restaurants that open and close regularly, and you might not even get any notice.
• 21:57
  SPEAKER_01: So, what protections do Canadians actually have here?
• 22:00
  SPEAKER_00: Well, there's more than you might think, and particularly on that expiry date piece that Ontario was the first province in Canada to ban expiry dates on most gift cards.
• 22:09
  SPEAKER_00: And this was all the way back in 2007.
• 22:11
  SPEAKER_00: So this has been on government's radar for a while.
• 22:14
  SPEAKER_00: And since then, most provinces have followed, and stores generally can't charge fees that chip away at your balance either.
• 22:21
  SPEAKER_00: Now, there are exceptions like cards for a specific service, like a spa treatment or promotional cards you got for free.
• 22:27
  SPEAKER_00: Rules are a bit different there.
• 22:29
  SPEAKER_00: The one to watch out for is the mall gift card, which you mentioned earlier.
• 22:33
  SPEAKER_00: In Ontario, a mall can charge a$1.50 activation fee.
• 22:38
  SPEAKER_00: And after 15 months, a dormancy fee of up to$2.50 a month.
• 22:43
  SPEAKER_00: So if you have a$50 mall card that gets lost in a drawer, uh, it's gonna erode down to about nothing in about three years.
• 22:51
  SPEAKER_00: So you got to go out and use that quickly.
• 22:53
  SPEAKER_00: So outside of these mall cards, though, your gift card is good forever in most of Canada, which is great, but forever is a long time to keep track of a little piece of plastic.
• 23:03
  SPEAKER_00: And the value on that little piece of plastic is going down less and less, not because the store's taking away your money, but because of inflation.
• 23:11
  SPEAKER_01: Right, which brings us right back to where we started, that gift card season gets sold to us as a way to stretch our money.
• 23:17
  SPEAKER_01: And this year, stretching it really matters to a lot of people.
• 23:21
  SPEAKER_01: Uh, and the companies on the other side of the counter absolutely know that.
• 23:25
  SPEAKER_01: Canadians are planning to spend less on the holidays this year, about$911, down from$975 last year.
• 23:33
  SPEAKER_01: But gift cards are still holding their share of that smaller budget.
• 23:37
  SPEAKER_01: The deal is lopsided on information.
• 23:39
  SPEAKER_01: The company has a pretty good estimate of how much this season's gift card money will never get spent, but you have no idea which card in your drawer or your giftees is going to be the one.
• 23:49
  SPEAKER_01: So that risk sits entirely with the consumer.
• 23:52
  SPEAKER_01: And just as a closing thought, somewhere in a finance department, someone has already estimated how much of this holiday season gift card money will never come back.
• 24:00
  SPEAKER_01: The only question is whose?
• 24:02
  SPEAKER_01: Thank you so much for watching and listening.
• 24:04
  SPEAKER_01: Our producer is Meredith Martin and our editor is Sean Foreman.
• 24:07
  SPEAKER_00: If you have any thoughts or questions about the Starbucks app or anything we talked about today, please leave a comment in YouTube and also like and subscribe while you're there.
• 24:15
  SPEAKER_00: It would really help us out a lot.
• 24:17
  SPEAKER_01: And we'll see you next time.