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Fed Study Suggests That Stimulus, Unemployment Enhancements Contribute More to Savings Growth Than Spending Increases

  • Federal Reserve study finds that households were more likely to put stimulus payments from the CARES Act toward savings or reducing debt than they were to spend the money on essential or non-essential goods
  • Respondents expect little change in spending habits if additional stimulus payments are approved
  • Those receiving unemployment benefits or forbearance typically concentrated on debt relief rather than saving or spending

Under the CARES Act, which sought to address the economic fallout of the COVID-19 pandemic, qualifying adults received $1,200 stimulus checks with an additional $500 for each child in the household. During negotiations for a compromise bill on new COVID-19 relief, both Democrats and Republicans have proposed a second round of stimulus checks to help bolster the economy.

A new survey from the Federal Reserve Bank of New York finds that recipients of the stimulus checks were more likely to use them to buttress their finances than they were to spend the money. In a survey of about 1,300 households, respondents said they saved an average of 36.4 percent of the check and used an average of 34.5 percent to pay down debt. An average of 18.2 percent went toward essential items while only 7.7 percent was spent on non-essential items.

Non-essential spending was highest among respondents under the age of 40, those with a college education, and those earning more than $75,000 a year. It was lowest among non-white respondents and those earning less than $40,000 a year.

Respondents indicated that they would continue to focus on saving money and reducing debt if a second round of stimulus was approved, saying they would put an average of 45 percent toward savings and 30.9 percent toward debt reduction. They expected to put an average of 13.7 percent toward essential spending and 6.8 percent toward non-essential spending.

Those receiving unemployment benefits focused mostly on reducing their debts, using an average of 48.4 percent of their stimulus check for this purpose while spending 23.9 percent on essential items and 4 percent on non-essential items. There was a similar trend among those receiving forbearance or other debt relief.

Previous stimulus programs have showed similar allocations. With the 2001 tax rebate checks, only about one in five recipients spent the money they received, with the typical household spending about 20 to 40 percent while saving the rest or putting it toward debt. With the 2008 economic stimulus payments, close to half of recipients used the money to pay off debt while 20 percent mostly spent the funds.

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