03 August 2006

The value of a $20 Starbucks card...

A $20 Starbucks stored value card is clearly worth less than a $20 bill. Why do people buy stored value cards at face value?

This question was posed by Aplia Econ blog. Below is my response,
This is not clear. The value card can do loads of things a twenty dollar bill cannot (and this is why people buy them).

1. It can be used over and over (well maybe twice at Starbucks) and you never get hard to handle change in return.

2. You can give it as a gift and therefrom exert some control over the recepient's purchasing patterns. The would work for a parent who derives value from seeing her child spend the money well (like on caffiene as opposed to illegal drugs). That is, unless the recipient could sell it for less than $20. However, the drugs which could be purchased for less than $20 are obviously less than those which can be bought for $20. However, if addicted, the child may resort to other, undesirable means of obtaining said drugs.

3. You can break into doors with the card, not the cash.

My money is on number 1.


Juan Carlos Bisso said...

Store-value cards have saved me from starvation several times. Because I can spend a $20 bill at any store, I oftentimes find myself with no cash. Cards that can only be used at specific locations constraint my capacity to spend such money, and so, I keep it as a reserve when the other means of spending are not available to me.

Alex Rixey said...

I think the MR post on the value of gifts received summed this one up nicely... give me cold hard cash any day. To me the only value to store cards is that those more cultured than I still think "it's the thought that counts" :o)