Americans used most of their stimulus checks for saving and paying off debt, Fed study shows

In this April 23, 2020, file photo, President Donald Trump's name is seen on a stimulus check issued by the IRS to help combat the adverse economic effects of the COVID-19 outbreak, in San Antonio, Texas.AP Photo/Eric Gay
  • Americans used most of their stimulus checks on buttressing their savings and paying down debts, researchers at the Federal Reserve Bank of New York said in a new study.
  • Roughly 36% of the relief payments went to savings, and 35% was used to pay off debt, according to a June survey of American households. About 18% was spent on essentials, and just 8% was allocated to non-essential goods.
  • Should a second round of payments go out, Americans expect to allocate larger shares to savings and use slightly less for erasing debt.
  • The checks are frequently cited as playing a major role in aiding the US economy through the coronavirus recession. Yet the Fed's findings show they also "contributed importantly to the sharp increase in the overall saving rate," according to the study.

Economic relief payments established by the CARES Act in March were mostly used to bolster Americans' savings and erase debt, according to a study published by the Federal Reserve Bank of New York.

Stimulus checks have been frequently cited as driving a sharp uptick in consumer spending and saving in recent months. While Democrats and the White House remain far apart in passing a new relief bill, both agree on including another round of payments to aid Americans and reinvigorate the slowing economic recovery.

Yet a survey of US households shows Americans used 18% of their checks on buying essential goods, researchers at the New York Fed said. Less than 8% of the funds were used for buying non-essential items. Just 3% was donated. Advertisement

Roughly 36% of the payment was saved, and, on average, 35% of households' checks were allocated to paying down debts, according to the June survey. The readings suggest Americans have more spending power left to drive the economic recovery onward, and that households used most of their checks to improve their financial conditions.

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"The unprecedented high uncertainty about the duration and the economic impact of the pandemic, the social distancing rules and restrictions on in-person shopping, and delayed rent payments may all have contributed" to the relatively small consumption pattern, the researchers said in a Tuesday blog post.
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The share of cash used to pay debts was marginally higher among non-white respondents, those without a college education, and those who make less than $40,000 a year. Households experiencing unemployment shocks or unexpected drops in income also used a larger amount of their checks to cover debts, according to the study.

A separate August survey asked Americans how they expect to use a potential second round of stimulus payments. The average amount allocated to savings rose to 45%, and the amount used to pay down debt fell slightly to 31%. Spending on non-essentials remained roughly the same, and spending on essentials crept lower to 14%. Differences across demographic groups in how they'd spend a second round of checks were largely the same as in the June survey, the researchers said.Advertisement

The Fed also looked into how households were spending cash from expanded unemployment benefits. Predictably, nearly half of the payments received by jobless Americans were used to pay down debt. The share of cash saved averaged 23%, significantly less than the allocation seen among stimulus check recipients. About 24% of unemployment benefits payments were used to buy essentials, and just 4% were used for non-essential goods.

In all, the surveys show that, while stimulus checks served as a "significant boost" to the economy, relatively little was used for consumption. Another round of payments would likely further improve Americans' finances and leave households better positioned to ride out the economic downturn, the Fed said.

"These findings indicate that the economic impact payments, by increasing both household income and the debt pay down, contributed importantly to the sharp increase in the overall saving rate during the early months of the pandemic," the team of researchers wrote.Advertisement

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