Say no to tax-rebate gift cards
Wednesday, April 30th, 2008
By Liz Pulliam Weston
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Most Americans should use their economic stimulus checks exactly as they told pollsters they would: to pay down debt and boost savings.
But retailers are doing their best to get a chunk — or, better yet, all — of your rebate check. The latest spin: offering you a gift card worth 10% more than your stimulus payment. So far, Sears, Kmart, Lands’ End and the many grocery chains under the Kroger and SuperValu umbrellas have announced such deals. Wal-Mart is expected to announce a plan within days.
Here are some of the reasons I hate this:
Your check won’t help your community as much as it could. The stores offering these deals aren’t the mom-and-pop places that could benefit from your checks the most and keep your money in the community longer. (The Kroger grocery chain includes Baker’s, City Market, Dillons, Fred Meyer, Fry’s, Gerbes, Hilander, Jay C, King Soopers, Owen’s, Pay Less, Ralphs, Smith’s and QFC stores. The Sears rebate deal applies to Sears, Kmart and Lands’ End stores as well as LandsEnd.com and Sears.com. SuperValu includes Albertson’s, Jewel- Osco, Cub Foods, Shaw’s and Shop’n'Save, among others.)
Buying U.S.-grown groceries or U.S.-made appliances is better than buying a plasma TV made overseas, of course, but if you really want your check to make an economic impact, spend it with a local business.
You pretty much have to give up your whole check. Kroger stores will at least give you change; you can buy as many gift cards as you want in increments of $300 and get change in return. Not the Sears stores, though. They want the whole check and will add 10% to the total loaded onto the gift card. And do you really want to spend it all at one store?
I hate gift cards on principle. They’re OK if you’re not actually giving them to someone. But they’re too easy to lose, and some come with fees that reduce their value over time (though that’s not the case with the Sears or Kroger gift cards). Also, they can become worthless if the chain files for bankruptcy, as Sharper Image’s recent filing showed.
But here’s the big one: You could be blowing your chance to get ahead. An ACNielsen poll in 2005 said 28% of U.S. consumers were living paycheck to paycheck, with “no spare cash” after paying bills. If that’s you, the last thing you want to do is squander this windfall.
Having just a few hundred bucks in savings could help you climb above the “work, spend and debt” rat race, as I wrote in “Why you need $500 in the bank.” That small cushion can help you avoid bounced-check fees, stay clear of payday lenders and avoid maxing out your credit cards when the next emergency inevitably crops up.
A young couple who throw their $1,200 combined rebate into a Roth individual retirement account and don’t touch it could have $20,000 by retirement, given typical long-term rates of return. Not a fortune, but way better than facing old age with nothing but a Social Security check.
Buy freedom instead
It’s more important, psychologically and practically, to have that little pad than it is to pay down high-rate debt — although that should be your next priority.
You may be telling yourself, “Well, I have to buy food anyway” or “I was planning to buy something at Sears eventually,” but that’s a slippery slope. You’re locking yourself into buying a certain amount from a certain retailer. Consider, instead, buying yourself some freedom from always living on the edge.
Resisting retailers’ siren calls is just going to get tougher as the Internal Revenue Service begins mailing out rebate checks and businesses ratchet up their advertising. So here’s my advice for a two-step plan:
* Figure out what you should do with the money. If you haven’t already, read “America, don’t blow this rebate” for a recap of your best options, including paying down debt, boosting savings and, if your finances are already in good shape, buying American. Make your decision now, before your head can be turned by advertising.
* Commit to that plan. You can read “Learn when you’ll get a rebate check” to find out when your check is due. If you plan to save the money or pay down debt, set up an automatic transfer that will take effect a week or so after your check is scheduled to arrive. Want to apply the money to your highest-rate credit card? Set up a transfer between your checking account and your credit card account. Want the money to go into savings? Set that up with your bank, or open a high-rate savings account online and have the money transferred there.
The key is to do this before the check arrives. When something is important — investing for retirement, saving for a goal, paying down debt or boosting an emergency fund — it’s best to make a decision once and set it up to continue automatically, rather than give yourself opportunities to change your mind.
