For all the johnny-come-latelies who spend the hours before midnight on April 17 scrambling to submit their tax forms, there are millions more Americans who are sitting pretty with their tax refunds already in hand. It’s a peculiar part of tax season. Nobody likes handing their hard-earned money over to the government, but plenty treat their tax refund checks like golden parachutes, federally sanctioned excuses to splurge on vacations, new clothes and the latest electronics.
But when it actually comes time to turn tax refunds into real purchases, do customers really stick to this found-money mentality?
In the past, the answer may have been yes. But in this winter of consumer discontent, surveys are showing that fewer and fewer people are cashing their refunds and heading straight for the nearest car dealership or tattoo parlor. While a National Retail Federation survey found that 65.5 percent of the country expected to receive a tax refund, almost half (49.2 percent) said that they had already made up their minds to send the funds to savings accounts rather than a retailer’s till.
NRF President and CEO Matthew Shay attempted to put a positive spin on the numbers, calling the reluctance to spend a calculated move on customers’ parts to prepare for eventual purchases and “boost confidence.”
“Consumers are boosting their confidence and building their spending power as they set aside their checks from Uncle Sam,” Shay said in a statement. “Americans this year see refund season as a time to improve their financial health by using their refunds to get ahead on savings goals, pay down debt and plan for purchases in the future. Money saved is spending potential down the road.”
If it seems desperate that one of the retail industry’s most powerful advocacy groups is saying that customers not spending money is somehow a positive indicator, other surveys would agree. A look at millennials’ reactions to tax refunds by NerdWallet
found that the newest crop of first-time filers are getting even more conservative with their federal kickbacks. As opposed to the 41 percent of millennials who saved their refunds in 2015, 54 percent say they plan to do so when their checks come this year. Even if millennials’ banks accounts are sufficiently padded, 41 percent said they still planned to spend some of their refunds paying down debt.
“The response shows how we are often torn between what we want to do with our income tax refund versus what we feel we should do,” Liz Weston, personal finance columnist for NerdWallet, said in a statement. “But the results generally show Americans have the right idea about tax refunds: Our priorities should be first paying down high-interest debt, then boosting our savings.”
But let’s give the NRF and Shay the benefit of the doubt. Maybe consumers really are just biding their time, building up their savings and their confidence in retailers in order to get the most bang for their buck. It’s not completely implausible to think that a few consumers will throw the how-to savings book out the window and spoil themselves with a big purchase, right?
No, it’s not unlikely, a survey by Consumer Affairs
found. It’s just implausible to think that customers will run to traditional retail with their tax refunds in hand. A stunning 81 percent of people surveyed said that they would rather splurge their refunds on weekend getaways over consumer electronics, like TVs and video game systems. Given that the Internal Revenue Service
clocked in the average 2016 tax return at $3,120, there may not be much left for traditional retailers after consumers give their savings accounts, their debt payments and Airbnb their dues.