Where People Spent Stimulus Payments – And Where They Didn’t

The stimulus payments may not have done much to, well, stimulate the economy at large.

A recent report by the National Bureau of Economic Research (NBER) finds that recipients of the initial $2.2 trillion in stimulus checks tended to use those payments to bolster their savings or pay down debt – and only a small percentage of those surveyed actually spent that money.

To recap: Back in the spring, as part of the CARES Act passed in March, qualifying adults got one-time payments (transfers) of up to $1,200, with $500 per additional child.

In terms of headline numbers, NBER found that 33 percent of the roughly 12,000 individuals queried said they saved the payments, while 52 percent paid down debt. Roughly 71 percent of the respondents who answered questions about their income said they earned less than $80,000 annually.

Only 15 percent spent the funds, and then only a portion of it, at about 40 percent. Breaking that down, of the remaining 60 percent, half went to savings and half went to pay down debt.

To provide a sense of where the dollars went, respondents said they spent the funds on food and beauty products, which we note are anything but splashy items or durable goods. As noted in the NBER paper, little of the spending went to industries “hard-hit” in the pandemic, such as cars and appliances.

The authors of the paper noted: “This relatively low rate of spending out of a one-time transfer is higher for those facing liquidity constraints, who are out of the labor force, who live in larger households, who are less educated and those who received smaller amounts.”

In other words, the read-across is that people spent the funds on everyday items, because without that one-time boost to their collective wallets, they would not have had the cash flow to make those transactions. And as PYMNTS research has found, roughly 60 percent of households live paycheck to paycheck, which makes saving for the proverbial rainy day a bit difficult.

Interestingly, the NBER paper cites other, earlier research showing that in past stimulus efforts, spending patterns were roughly similar to what has been seen this time around with the CARES Act. In one example, with the 2001 tax rebates, households spent roughly 20 percent to 40 percent of those funds in the first quarter after receiving them, with two-thirds spent over the first six months. In the wake of the fiscal stimulus paid out in the 2008 financial crisis, the average household spent between 12 percent to 30 percent on non-durable goods in the quarter after receiving payments.

Asked during the survey how they had received their payments from the CARES Act, 80 percent of respondents told NBER they had gotten them via direct deposit, while the remainder received checks.

Drilling down a bit to find differences connected to paying down debt or using the money for other purposes, NBER found that some of the starkest differences are associated with housing – namely, whether individuals carry mortgages. Owners with a mortgage spent 15 percent more of their stimulus on paying off debt than owners without a mortgage. Those respondents without mortgage debt, reported NBER, “save more and purchase more food/personal products as well as other consumer products.”

As to why the latest round of stimulus spending was not enough to stimulate the economy, NBER posited that the relatively muted impact “reflects the presence of the pandemic that caused the need for spending in the first place. Few restaurants are operating at full capacity, many bars and shopping outlets are closed, recreational activities are curtailed and travel options are limited, so there is less scope for spending on the part of consumers.

“Furthermore,” the study continued, “the closing of offices and widespread lockdowns reduce the need for transportation, which may help explain why so little spending went to larger durable goods like cars. To the extent that the pandemic will ultimately end, it suggests that future stimulus payments to households may be more effective in future crises.”