US Stimulus Check Spending
Evidence suggests that investing and purchasing cars are a low priority for Americans right now. The Stimulus checks, for the most part, have gone towards necessities like shelter, food, and past due bills. The uncertainty of how long the quarantine will last, along with a fear of job loss, has prompted many to cut back on spending, not increase it. Many economists state the stimulus checks will not stimulate the economy, but they are more of a stop-gap measure to prevent economic devastation for many households.
Stimulus Payments Facts & Figures
- The stimulus checks will, on average, only cover 48% of an individual's monthly spend. 15% of Americans will need another check in only two weeks.
- 14.1 million Americans do not have a bank account and will be the last to receive their checks.
- 40% of Americans have had their income impacted by the corona virus. Of those who have lost their jobs, 43% are not confident they will be employed within the next three months. Of those employed, 11% consider their job at-risk.
Stimulus Payments and the Effect on the Economy
- Currently, millions are out of work and there is no concrete timeline for when businesses will reopen and get the economy back on track. There is little evidence that the stimulus checks did little to boost the economy, but yet it was a brief band aid that let many Americans pay rent, bills, and buy groceries. Because of this, there are multiple other relief packages being discussed, but none are near being approved. Some of the relief being pitched is to cancel rent and mortgage payments, and monthly checks for 6-12 months.
- The $2,000 a month payments until employment levels recover are being touted by legislators as a way to help fire up the economy considering that consumer spending makes up around 70% of the US economy.
- The $2.2 trillion CARES Act, passed a little over three weeks ago, has done little to slow the economic deterioration, according to CBS News. Economists that had originally predicted a slowdown of the economy and a swift recovery are now warning this downturn could last longer than they forecasted.
- In a recent report by Moody's Analytics economist Mark Zandi stated, "The damage to the economy to date has been mostly the result of the supply-side shock from the business shutdowns. But, the demand-side of the equation (households pulling back on their spending) is just now hitting."
- Justin Wolfers, an economist of the University of Michigan, says these checks aren't meant to get consumers into shops or stimulate spending, in the way a normal stimulus package would: they're intended for survival."
- Jason Reed, a Notre Dame finance professor said, "The actual amount of money that every family is getting would likely not be enough to prop the economy back up." He anticipates more financial relief programs will be needed until the country to be fully back up and running, which could take a while.
2001 & 2008 Stimulus Spending Study
- The Brookings Institute conducted a study on how the 2001 and 2008 stimulus checks were spent and how they effected the economy. Nearly two-thirds of these checks were spent on non-durable goods.
- In another study, it was found that 12-30% of the stimulus money was spent on durable good like cars and trucks. 50-90% spent their checks during the three months when they received them.
- Kellog Insight completed research that broke down how the checks were spent.
- It is important to remember that during these times the US was open for business. There are many areas of discretionary spending that are not open. Additionally, there are many more people out of work, with 17 million Americans applying for unemployment. Unemployment is on pace to hit 15%, which is higher than in the Great Depression.
Consumer Concerns Dictate Spending
- 31% of those polled in the Bankrate survey stated that the payments will sustain them for less than one month. 64% state is will sustain them for less than 3 months. 8% feel it will not help their situation at all. These numbers indicate that Americans are not looking at this payment as a way to boost the economy, like previous stimulus checks were, but as a way to sustain themselves.
- When looking at the top stressors during the corona virus outbreak, they indicate that the majority of Americans are concerned with having enough savings and money to outlast the quarantine. This uncertainty has definitely altered their spending habits. In Harris Poll, respondents were able to provide their top 5 stressors.
- Of those polled, 75% had taken steps to adjust their finances during the outbreak and 42% have cut monthly expenses.
- The top stressors are:
- Having enough emergency savings (41%)
- Job Security (39%)
- Income Fluctuations (29%)
- Paying Utilities (28%)
- Financial market volatility (25%)
- Paying down debt/off credit card debt (23%)
- Having enough saved for retirement (23%)
- Paying health care bills (19%)
- Putting off major financial decisions (17%)
- When looking at those that make less than $50,000 per year, over half view the check as very important to their financial situation.
- With those that make over $50,000, the concern is still strong with almost half having the same opinion.
- Only 17.6% feel this check will relieve all their difficulties. 17.2% state it will relieve most difficulties. The majority, 39.5%, believe it will relieve a few difficulties, while 9.8% will still have a significant level of difficulty. Of interest, 15.8% state they have no financial difficulties due to COVID-19.
With many concerned about the volatility of the market and putting off major financial decisions, it seems that the pool of people considering making a large purchase like a car, or investing, is a small one.
Overall Stimulus Spending
- 84% of the respondents in a Clear Cover poll stated they were scaling back spending in categories deemed nonessential during the pandemic. Many are instead, increasing their grocery budgets (34%), and streaming services and gaming (9%). 58% state that they plan to maintain these adjusted budgets for 2-6 months.
- Current, a digital bank, states that of their 16,595 customers that received the stimulus check, about 45% of the total has already been spent.
- To obtain the most accurate results for overall spending, the results from 8 surveys were used. In most of the surveys, participants could pick more than one option. An average was calculated for each spending area. The surveys, along with averages, have been compiled into a spreadsheet.
- The averages are as follows:
- Pay Bills - 44%
- Buy Groceries - 36%
- Household Essentials- 30%
- Rent/mortgage - 23%
- Savings - 29%
- Pay down debt/student loans- 24%
- Donate - 5%
- Invest in stock market- 7%
- Make travel plans - 2%
- Buy luxury goods/discretionary spending- 4%
- Other - 10%
- Gas - 10%
- Video games/streaming- 7%
- ATM withdrawal- 9%
Stimulus Spending by Household Income
- Stimulus check spending by income may be viewed here.
- Overall, lower incomes correlate with being more concerned with paying bills, rent/mortgages, and buying food.
- Higher incomes are a little less worried about the above, and by a small margin plan to invest more. Paying bills was still the most popular choice for this group also.
Stimulus Spending by Generations
- Millennials are more likely to use their checks to pay for bills (49%), and rent/mortgage (37%). 86% state they are cutting their spending. According to Crediful, this group was more likely to spend on stocks and investments than others.
- GenZ is the generation that is most focused on paying off student loans (11%) and saving their money, with 21% stating they would put all of their check in savings, and 39% stating most of it would go to savings.
- 77% of people over the age of 55 state they are cutting back their spending.
- GenXers are more likely to use the checks on bills and utilities, savings, debt, toiletries and hygiene.
- Baby Boomers are most likely to spend their checks on groceries, health/medical, and clothing.
Stimulus Spending on Automobiles
- Spending surveys did not ask about automobiles in general, but when looking at the spreadsheet, we see that only 4% indicate they will buy luxury good or use their money for discretionary spending.
- By income, only 2-5% indicate they will spend their money on non-essential items at this time. It could be argued that a car is an essential item if one does not own a car, but there was no indication that people would be going out and buying cars if it was not necessary at this time.
- Autotrader recommends using the stimulus payment for a down payment on a car only if the person's job is secure and they do not foresee any negative impact on their income. They did not recommend buying a more expensive car, but using the money to put the maximum down payment, so monthly payments are as low are possible.
- Carvana, on the other hand, expects the stimulus checks could potentially assist the company with US sales.
- Kristin Dziczek, vice president of industry, labor and economics at the Center For Automotive Research stated, “The automobile is one of the single most expensive consumer purchases people make,” she said. “When you can’t leave your house, it’s very difficult to do that.” She went on to state the key obstacle was the lower than normal consumer appetite for a new car right now.
Stimulus Spending on Investing/Stock Purchases
- As stated above, around 7% plan to put some of their check towards investing or stock purchases, with those making more money the most able to do this. Additionally, millennials are more likely to invest than any other generation.
- In another survey, Motley Fool states that 10.7% of American's plan to invest their money in the stock market. In the 8 surveys used to make the average spending, only one survey, Crediful, had numbers that high. The rest were lower.
- Bitcoin has seen a surge in $1,200 investments since the stimulus payments have arrived.
- In general, most financial advisors mirror the advice of Motley Fool. They say it is better to put the check into savings unless you have enough cash on hand to cover a few months living expenses. They also state to pay off credit cards before investing, as they are the biggest wealth destroyer.