Gift cards become the secret weapon in the battle for affordable housing and financial freedom | News

In an era characterized by soaring housing prices and innovative financial strategies, a surprising trend is emerging: the use of gift cards as a way to navigate the homeownership landscape.

Traditionally reserved for birthdays and holidays, gift cards are now finding a new role as unconventional tools for saving for down payments. They also provide a creative alternative to traditional banking methods for managing your finances. These unconventional approaches reflect consumers' ingenuity and adaptability in the face of economic challenges, offering insight into the changing paradigms of personal finance in the modern era.

Using Gift Cards to Manage Your Finances

There are two ways people use gift cards to budget. A small but growing number of people are using them in place of a cash envelope budgeting system. This popular technique allows users to allocate money to each spending category and store the money in an envelope. Popular envelope categories include groceries, utilities, and entertainment.

When consumers empty their envelopes, spending in that category stops for the rest of the month. To continue spending, they must transfer money from another envelope to cover future expenses.

However, the traditional monetary envelope is not as effective when more and more consumers rely on credit as a means of payment. However, by purchasing reloadable gift cards, users can assign a card for each category and ensure they don't exceed their budget.

With this method, consumers can purchase Apple gift cards to cover the costs of digital content, and once they run out of money, they stop spending. The most popular areas for this type of budgeting are digital content purchases (83%), grocery stores (47%), gaming (41%), and online retailers (23%). For many, it's a simple way to ensure you're spending wisely.

“I grew up using cash envelopes to budget, but with online shopping and paying bills, using a cash-only budget was too complicated. By using gift cards, I can still use the budget system even though I do most of my shopping and pay my bills online,” says Pam, a mother of two in Pennsylvania.

A growing number of people are going even further and using them as a banking alternative, with a 25% increase year-on-year. Some consumers use reloadable and virtual gift cards instead of traditional checking accounts to make purchases and pay bills.

The growing popularity of gift cards and cash as gifts

There is still a robust market for gift cards and cash as gifts. The value of the global gift card market was estimated at $835 billion in 2022, and forecasts predict it will reach $4.2 trillion by 2032. Part of this growth comes from the increasing popularity of requests newlyweds and first-time home buyers.

Forty-three percent of first-time home buyers say cash gifts are a source of a down payment, and 85 percent of newlyweds put a real estate fund on their wedding registry. The median home price is $417,700, so a 20% down payment equals $83,540. Putting in as little as 5% means having $20,885 in cash.

With a personal savings rate of just 3.7%, saving either amount for a down payment would take many years. A unique way to increase your savings and reach that goal faster is to ask for money for a down payment or gift cards to offset expenses in other areas.

Unique Ways People Get Gift Cards

While the traditional method of purchasing gift cards is to visit a store or purchase directly from an online retailer, people are getting creative to save money. For many, purchasing a grocery store gift card and paying with a cash back credit card is a popular option. If a credit card offers 2% cash back on grocery store purchases and a person buys $100 worth of gift cards, they earn $2 in cash back, effectively bringing the purchase to $98.

Some consumers wait for discounts and purchase gift cards from warehouse clubs at a savings of 5% or more. Others provide discounts for the holidays.

Yet others are getting even more creative. Many people are turning to apps that pay money and opting for gift cards as rewards rather than cash. For example, many apps allow users to play games, watch videos, or take surveys to earn points. They can redeem these points for gift cards to their favorite retailers. This route allows them to obtain a gift card without paying anything other than their time.

Some websites sell unused and partially used gift cards at a discounted price. CardCash.com is a popular option, with some cards selling for up to 25% off face value. If a person chooses this route, it is essential to purchase the card from a reputable source that verifies that there is money on the card. There is no verification when purchasing gift cards from Craigslist or Facebook Marketplace, and scams are widespread.

Should you give cash or gift cards?

Cash or gift cards are appropriate as wedding gifts or to help finance a down payment on the house. Etiquette expert Diane Gottsman says, “Cash and checks will be greatly appreciated, and it becomes subjective, depending on the bride and groom. Some people prefer cash, while others may keep better records of checks when writing thank you notes. [for cash gifts].”

When offering gift cards, make sure recipients prefer open-loop cards, like Visa, or closed-loop cards specific to particular retailers.

Reasons to be careful with gift cards

For people who decide that gift cards are a smart way to manage their finances or a gift to help their loved ones purchase a home, understanding the downsides of gift cards is essential. The biggest problem affecting gift cards is fraud, which can take many forms.

The most common case is when a scammer copies the 16-digit code and PIN of a gift card and replaces the scratch area covering the PIN, making it look new. When a person activates the card by purchasing it, the scammer immediately spends the balance, leaving the real owner with a worthless gift card.

Worse yet, gift cards are considered cash equivalents, so it's almost impossible to get the money back. There's also no sign of a slowdown in gift card fraud. In 2023, it increased by 50% compared to 2022. It is therefore essential to inspect a gift card before purchasing it. If there are signs of tampering, the potential buyer should immediately notify the store management and not purchase it.