Americans Use Stimulus Checks to Pay Debt, Save

Americans said they used more than two-thirds of the $1,200 stimulus checks they received as part of the CARES Act to pay down debts or save for the future.

After two rounds of surveys, the Federal Reserve Bank of New York found that as of June 2020, on average 36% of the lump-sum economic impact payments were put into savings, while 35% of the funds was used to pay down debt. 

Respondents who are non-white, without a college degree, in lower-income households, and in households experiencing negative employment shocks or income drops were more likely to use the stimulus checks to pay down debts, the report found. Meanwhile, respondents who are less likely to be “cash-constrained” saved the money. 

Only 29% of the payments were used for personal consumption, the report found. An average of 18% of these funds were used for essential spending, like groceries, and just 8% were spent on non-essential items like leisure or vacation. 

Consumer spending increased by 141.1 billion, or just 1%, in August, while the personal saving rate was 14.1%, down from 17.7% in July, according to the Bureau of Economic Analysis .

“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 (which economists count as consumption) may all have contributed to the small [personal consumption] estimates we find,” the report said. 

What to expect from the next round of checks

When asked how they would use an additional $1,500 if received, respondents said on average that they would save 45% of the money, use 31% of the funds to pay down debt, and use 24% of the payment for personal consumption. 

The reason why people said they would use a smaller percentage of the second payment for personal consumption is because of diminishing returns to additional temporary income increases, the report said. However, the report also noted the discrepancy between the first and potential second round of checks could be a reflection of the difference between expected and realized spending

What about those receiving unemployment benefits?

Unsurprisingly, respondents who receive unemployment insurance (UI) checks spent, on average, a higher share of the funds to pay down debt (48%) and on essential items (24%). 

“This difference, of course, is most likely related to the fact that those who are on UI are more likely to be credit- and cash-constrained,” the report said.