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COVID-19

How recipients will spend COVID relief payments depends on their income

Mitchell Hartman Mar 26, 2021
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Middle-income households may increase their spending a bit, and pay down debt. But Camilla Yanushevsky at CFRA Research said some of them may hold back, because they’re worried. LPETTET via Getty Images
COVID-19

How recipients will spend COVID relief payments depends on their income

Mitchell Hartman Mar 26, 2021
Heard on:
Middle-income households may increase their spending a bit, and pay down debt. But Camilla Yanushevsky at CFRA Research said some of them may hold back, because they’re worried. LPETTET via Getty Images
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A little over two weeks ago, President Joe Biden signed the American Rescue Plan. Within days, many Americans started getting their third round of relief payments.

At $1,400 a person — up to the income cutoff — those payments add up to about $400 billion. How is that money likely to flow into the economy?

This third round of relief payments is bigger than the previous two. “You have families right now who are getting thousands of dollars — in some cases maybe $3,000 $4,000 $5,000,” said Lisa Rowan, who tracks consumer behavior at Forbes Advisor.

“You know, you think, ‘Oh, it’s a party! They’re going to be able to spend, they’re going to be able to purchase vacations for the future.’ But I think for a lot of families, this stimulus check to them means that they’re going to be able to get caught up on bills, or pay down some of that debt that they incurred during the pandemic,” Rowan said.

The pandemic has affected Americans in different income brackets differently: People who worked low-wage service jobs before the pandemic are most likely to be in serious financial distress now, said Notre Dame economist James Sullivan.

“For those that have low earnings, these payments are often used to make a large payment, like a security deposit, back rent, to pay off a debt or to buy a large durable good,” he said, like a used car to get to work. “They don’t often have enough savings to make those kinds of transactions, and a large payment like that positions them to do so.”

Middle-income households may increase their spending a bit, and pay down debt. But Camilla Yanushevsky at CFRA Research said some of them may hold back, because they’re worried.

“Concerns regarding economic prospects and the speed at which employment conditions can be restored,” Yanshevsky said. “We think that group is most likely to save, to embrace frugality.”

That describes Jessica Oyanagi’s family in Hawaii. Her photography studio hasn’t had much business, and her husband’s welding work has been slow.

“We’re just putting our stimulus payment into savings in case anything goes sideways again and we need the money for everyday living,” Oyanagi said in a voice message. She was too busy homeschooling her kids for an interview.

“It’s not a very exciting way to spend the money, but I guess these are just the times we’re living in.”

Folks who have discretionary income to spare are likely to spend their relief payment on entertainment and services, Yanushevsky said. And then there are folks who are doing so well, they don’t even qualify for a relief check:

“Higher-income Americans, the ones that haven’t lost their jobs, might have even seen income growth,” she said. “They’re very well positioned to splurge,” particularly on domestic and international travel, helping that hard-hit sector of the economy to recover.

COVID-19 Economy FAQs

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

How long will it be until the economy is back to normal?

It feels like things are getting better, more and more people getting vaccinated, more businesses opening, but we’re not entirely out of the woods. To illustrate: two recent pieces of news from the Centers for Disease Control. Item 1: The CDC is extending its tenant eviction moratorium to June 30. Item 2: The cruise industry didn’t get what it wanted — restrictions on sailing from U.S. ports will stay in place until November. Very different issues with different stakes, but both point to the fact that the CDC thinks we still have a ways to go before the pandemic is over, according to Dr. Philip Landrigan, who used to work at the CDC and now teaches at Boston College.

How are those COVID relief payments affecting consumers?

Payments started going out within days of President Joe Biden signing the American Rescue Plan, and that’s been a big shot in the arm for consumers, said John Leer at Morning Consult, which polls Americans every day. “Consumer confidence is really on a tear. They are growing more confident at a faster rate than they have following the prior two stimulus packages.” Leer said this time around the checks are bigger and they’re getting out faster. Now, rising confidence is likely to spark more consumer spending. But Lisa Rowan at Forbes Advisor said it’s not clear how much or how fast.

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