Support small businesses with gift cards – but know the risks

During the coronavirus pandemic, gift cards are nothing short of a lifeline for some small businesses.

“Every bit helps,” said Dean Smith, a co-owner of Jazams, a boutique toy store with locations in Princeton, New Jersey, and Lahaska, Pennsylvania. 

Before the coronavirus crisis, Smith said, his business relied almost entirely on foot traffic to the two stores. Now he is working seven days a week to beef up his online offerings and he is also providing free delivery or curbside pickup.

“We’ve gone from 300 items on our website to almost 4,000,” Smith said, which means customers who purchase gift cards don’t have to wait until the business is up and running to redeem them.

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Still, it’s not enough to stay afloat, Smith added. “We need to do around $5,000 a day, and right now we are doing just over $2,000 on a good day,” he said. “It would be a heck of a lot of gift cards.”

Smith said he’s also applied for a forgivable loan through the government’s small-business stimulus relief package, but has yet to hear the status.

For the most part, sales of gift cards go straight to a business’ bottom line, which is invaluable in a time of turmoil. What people do with those gift cards after purchasing them is another story.

Even before Covid-19 wreaked havoc on the economy, Americans were sitting on roughly $21 billion in unredeemed gift cards or store credits, letting much of those funds go to waste.

The good news is that, around a decade ago, new rules added consumer protections to gift cards.

Now, “by law, gift cards cannot expire for at least five years from the date of issuance,” according to Jill Gonzalez, a spokesperson for personal finance website WalletHub.

Still, it’s better to use gift cards sooner rather than later. For starters, a gift card won’t be worth anything if the business that issued it goes under.

“If you still want to go ahead with this idea to support your favorite businesses, make sure you’re not spending more than you can afford to lose,” said Ted Rossman, industry analyst at CreditCards.com.

Alternatively, buy gift cards and give them as presents, Rossman advised.

“Instead of plunking down a lot of money and planning to use it yourself over a longer period of time, spread that money over several people for upcoming holidays such as Mother’s Day, Father’s Day, graduations and friends/family members’ birthdays,” he said. “Then the business and the gift recipient can benefit sooner rather than later, which probably works best for all parties.”

You can also donate unwanted gift cards to charity, in which case the gift cards would be sold and 100% of the proceeds could go to a worthy cause.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.