IStock Photo 7662514 © Andrew Johnson

Americans like giving gift cards for the Christmas holiday. More than 95% of Americans have received or purchased gift cards, and stores display them in full force as the season progresses. In 2008, 1 in 1.52 (66%) adults planned to give a gift certificate or gift card for the holidays, and this year gift cards are projected to remain the top US Christmas gift for the 6th year in a row.

At its best, gift giving delights the recipients, demonstrating how well the givers know the tastes, desires, and needs of their loved ones. At its worst, it causes stress and hurt feelings as recipients try to fake delight over unwanted selections then ask for the receipts so gifts can be returned. Gift cards avoid all that specificity (is she the one with the deadly nut allergy?). The choice to give a gift card cannot offend, as when the gift of a poseable doll insults a niece’s pose of maturity, or a two-sizes-too-big sweater makes it obvious that no one believed an uncle who declared he was going to lose weight that year. They belie the famous Waldfogel study that says everyone underestimates how much Christmas gifts cost; the value of a gift card shows exactly how much you care—or can afford.

So it’s no wonder Americans like gift cards. They combine the country’s pragmatic streak (don’t buy gifts that people don’t want!) with its penchant for conspicuous consumption (there’s nothing more exciting than a shopping spree!).

But the advantages of a gift card sometimes accrue more to the merchant than to the recipient. Although many people welcome the guilt-free consumer-frenzy of buying with a prepaid card, the recipients receive a responsibility along with their gift. They have to keep track of issuer fees, watch for expiration dates, and even keep an eye on the business press. Remember Sharper Image? After the company claimed Chapter 11 in February 2008, it announced that it would no longer accept gift cards. With one press release, all balances suddenly registered $0.00. And while new federal regulations will limit extra charges, the rules won’t go into effect until after the 2009 holiday season.

Recipients also have to get to the store—or at least the website—and cash in their gifts. In 2006, the value of unused gift cards—about 10% of all the cards purchased—reached $8 billion. That annual sum caught the attention of state governments, and some have begun collecting expired gift cards and allowing retailers to claim them as income. The practice benefits businesses’ bottom lines and presumably bolsters tax revenues.

But public officials are not immune to the lure of a gift-card buying spree. Baltimore Mayor Sheila Dixon is currently on trial for taking 60 Best Buy and Old Navy gift cards intended for the poor and spending them on—what else?—gifts...for her friends. At least she knows that gift cards are one gift it’s smart to cash in as quickly as possible.