How did people spend their stimulus checks? It’s not what you think.
Here’s what you need to know.
If you guess how Americans spent their $1,200 stimulus checks, your answer might look something like this: food, housing, utilities and personal care. In other words, people spent their stimulus checks on necessities. However, you would only be partially correct. According to new data from the New York Federal Reserve, only 29% of Americans spent their stimulus checks on consumption. Here’s the breakdown:
Debt Repayment: 35%
The Cares Act—the $2.2 trillion stimulus package that Congress passed in March—was intended to stimulate the economy through stimulus checks. Interestingly, more than two-thirds of survey respondents spent their stimulus checks on savings and debt repayment—not on consumption. For the first stimulus checks, individuals who qualified received up to $1,200 (or $2,400 for married or joint filers) and an additional $500 for each dependent child under age 17. However, the data shows that consumer spending was the not the primary use of stimulus payments. Of the 29% of Americans who spent their stimulus checks on consumer spending:
Essential spending: 18% spent on necessary living expenses
Non-essential spending: 8% spent on hobbies, leisure and vacation
Donation: 3% donated to charity
Savings and Debt Repayment
According to the data, 35% of survey respondents saved, rather than spent, their stimulus check. That’s six percentage points higher than those who spent on consumption. Why such a relatively higher savings rate? There could be several reasons, according to the Fed, including continued uncertainty about the duration of the Covid-19 pandemic, social distancing rules, restrictions on in-person shopping and “delayed rent payments (which economists count as consumption).”
Another 36% of survey respondents spent their stimulus checks on debt repayment. Debt repayment may include paying off student loans, mortgages, credit card debt, auto loans or personal loans, for example.
Those who received unemployment benefits reported spending approximately 24% on essentials. The reason for the relatively lower savings rate and higher essential consumption rate can be explained by lack of income during the Covid-19 pandemic. That said, the higher debt repayment at 48% shows people spent their stimulus checks on improving their personal finances, rather than on non-essential spending.
Second stimulus checks
Will there be a second stimulus check? While there is no guarantee of second stimulus checks, the Fed asked respondents how they planned to spend a second stimulus check. The data is even more striking:
Debt Repayment: 31%
This data suggests that Americans mostly plan to save their second stimulus checks, and spending could decrease. Nearly half say they will save their second stimulus check, which means they would not spend it to boost the economy.