#because if the company is going tk bad financial health they might go bankrupt and youd never be able to redeem the gift card

[thepowerisyouth]

This started as a simple rant about gift cards but is probably turning into my master post on the lost story of the corporate gift card valuation crisis.

Starts as the simple rant but gets more technical in economics and accounting as it goes on- so fair warning.

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Gift cards are often thought of as a boring, low effort gift, although more polite than cash. Plenty of good reasons why they are a bad gift from a thoughtfulness standpoint, but I'm going to focus on the financial value.

Adult humans that live under capitalism are generally, learnedly able to understand the time value of money, even if they cant physically execute the calculations on paper. If you dont believe me, just trust me-- its how all of economics works. We are generally able to value things very well according to our own subconscious estimations.

This is not to say people who receive a gift card are just focused on the dollar figure, however I think the financial frustration lies with the fact that, inherently a $25 gift card is worth less than $25 cash. Probably a lot less

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As a present, gift cards remind me, actually, of the stereotype of a grandparent buying their descendents, "war bonds", but somehow gift cards are even worse.

Sorry this is going to be a long explanation of why gift cards suck--

A war bond, which is now simply called a US Treasury bill or bond, is a 'redeemable certificate', which allows the current owner to be sure that the dollar amount (face value) shown on the certificate will be granted, plus interest accumulated from the point of issue until the present date, and the note is redeemable early in most common cases, and is redeemable at most banks or financial institutions around the world. Well... they might not now but they are supposed to

Section 1. Bond overviews

These Treasury bonds are just debt that the US government, i.e. the taxpayers, have to pay back to whoever purchased this bond.

Economics is intended to be confusing to understand, an example of this being how they love to make it hard to understand that every time you hear about bonds and interest rates they are talking about gambling with our public taxpayer debt. Calling it "buying bonds" makes it seem more normal investy stuff

Anyway-- so this is debt right? Well like all debt, it requires a good credit score, and collateral. The official term is "backed by the full faith and credit of the United States Government"

In summary of this section using numbers:

If you get a treasury bond that says $100 & 5% annual interest, the Treasury department guarentees you can receive $100 amount in the future (maturity date), as well as $5 per year for your troubles, unless the US government is toast at any point.

If the holder sells the bond prematurely on the 'secondary market'--which is the clever term for the stock market for bonds-- they might get more or less than the "face value" depending on current interest rates, if those current rates differ from the interest rate set on the bond at hand.

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Section 2: Basic Bond Valuation

So using previous example, the face value of $100, and that only comes back from the treasury department on maturity day (up to 30 years away now for long term bonds)

So in the meantime, people "trade" (gamble most of the time) those bonds on the market. Cause why the fuck not?

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Most of the time, in a non inflationary environment, bonds with expiration dates of less than 5 years do not change price much at all in this 'secondary market'.

Why? Well--

In an inflationary environment (only recent examples are 1970s & 2020s) most bonds are decreasing in value, with the lowest interest rate bonds decreasing the most. Every other period has bond prices generally flat (so you still get the 5% interest) or trending up

The economic mechanics behind what lowers bond prices in high interest rate environments is pretty simple-- if I have a 30 year loan the government owes me, with 5% annual interest, and the guy who bought the same 30 year bond back in 2017 only got 2% interest, then I have an inherently more valuable loan or bond.

Going to start circling back to gift cards-- A 0% bond is only worth more than a negative interest bond.

(looking at you japan they were briefly paying banks 0.5% interest to borrow money from the government. As in a -0.5% interest loan)

Okay gift cards time

$25 Gift card = corporate bond of face value $25, with 0% interest, and is only redeemable in person at the companies restaurant with immediate purchase of their product

A gift card is identical then to the boring "war bond" gift, except that:

1) it can only be redeemed at their limited locations in person, and only with immediate purchase of their product or service

2) this certificate does not accrue any interest, which means that from a value standpoint its guarenteed to lose value over time unless interest rates are below 0% like japan had

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Again, most people are very capable of understanding that the value of a 0% corporate bond which cannot be easily sold is worth less than the face value-- much less. Just most people probably dont have the experience in finance to put to words why exactly that situation is so frustrating from a financial standpoint

What a stupid gift, cash is way better.

Especially in an inflationary environment like the 2020s. my god the valuation loss of all the gift cards recently is incalculablely enormous

It would be a very snarky, not nice response to being gifted a gift card if the receiver replies back that the technical market value of this $25 gift card is actually $14.75 due to the current globally high interest rate environment in addition to the company having a BBB Moody's credit rating rather than a perfect AAA

I'm very, very tempted to do a sample valuation of a random hypothetical gift card to reinforce this point, but valuations arent quick and I already know it would take me half the day just researching the numbers to put together for it

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I had no idea I was going to have this much to say but we're on edit #4 to this post Im gonna keep going:

The inflation of the 2020s has led to the largest (by dollar value and probably other metrics) corporate bond valuation crash of the.. ever

But corporate bonds are mostly held by the upper middle class & higher, as well as other corporations. So of course we hear them crying about their loss of wealth. Easiest example can be found by looking for the annual returns on an ETF which trades only corporate bonds. They got fucked in 2021 and arent back yet

What I'm getting at is that most poor people do not own individual bonds-- its just not really something that makes sense as a poor person.

Back to poor people's wealth--

Someone who has a retirement funds might invest in corporate bonds through that fund. But dont get me started on how complicated those funds investment strategies are to mitigate the risk (but yes they arent good at risk mitigation lose value a lot from dumb preventable mistakes).

And also looking at 5 yr price charts for many retirement funds, the ones with more corporate bond holdings have done way worse than their peers in the retirement fund game who put more money in stocks over that period

Poor people do, however, give each other gift cards... a lot. Weve kind of been told for a long time that its a more appropriate gift than cash. I wonder whod want us to think that. Maybe the corporations who are getting away with selling hard-to-redeem junk bonds as "gift cards"?

Likewise with all corporate bonds lately, the total balance of gift cards issued & held by the general public is larger than it has ever been in prior decades like the 1970s. There was issues with gift cards then, just the total amount was much, much less

Except probably not anymore-- only the face value being reported on their financial statements is that high, as accounting standards do not require companies to regularly value their gift card balances at market value. They are allowed to report it at face value, until it is removed from their balance sheet and resolved as pure income. Not 100% sure the GAAP guidance for it, but I know they dont HAVE to specifically mark down gift cards as they dont have expiration dates. I know that if a company did need to mark down that debt balance for whatever reason, the only way to lower that balance is by calling it "other income".

So poor people have felt a multi-billion dollar loss of wealth from gift card values, which is obviously not ever going to be studied or talked about cause who the fuck cares about poor people

And when that loss does get "realized" from an accountant standpoint-- it would be considered income for the fucking corporations.

Actually reminds me of Starbucks class action about the gift card balance. Lot to dig into there but thats more because of their extra predatory practices around redeeming it