How People Spent Their Stimulus Checks — and What You Can Learn From Them

In March, businesses were shutting down and laying off workers, offices and schools were closing, and the stock market was crashing. By the end of the month, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, which, among other things, approved a stimulus payment of up to $1,200 for each adult, plus $500 for each qualifying child, for people who earned less than $99,000 (or $198,000 for joint filers) on their last tax return on file, with the amount phasing out near the income cut-off.

Most Americans received their payments in April and May, and in July they were asked how they spent the money. Only 15% of the recipients said they spent (or planned to spend) most of their stimulus payment. Instead, 52% used it to pay down debt and 33% mostly saved the money, according to a National Bureau of Economic Research working paper by economics professors from the University of Chicago, University of Texas at Austin and University of California–Berkeley. They found that most people made smart moves that could help their finances over the long term, even if they didn’t stimulate the economy.

If you receive any other extra money — whether from a tax refund, bonus or if there ends up being another round of stimulus payments — it can be a great opportunity improve your financial situation, especially during this uncertain time. “If your income hasn’t been hit too badly, this stimulus is found money to you,” says Patrick Carney, a financial advisor with Rodgers & Associates in Lancaster, Pennsylvania. “Use this as an opportunity to shore up any holes in your finances.”

Here are seven ways people used their stimulus payments — and how these moves can help you, too.

— Stay current with your bills if you lose your job.

— Build up your emergency fund.

— Pay down high-interest debt.

— Save for retirement or avoid tapping your retirement savings.

— Improve your home.

— Reinvest in yourself.

— Give it away to help others.

Stay Current With Your Bills if You Lose Your Job

The study found that lower-income households and those facing liquidity constraints were significantly more likely to spend their stimulus checks. “Little of the spending went to hard-hit industries selling large durable goods (such as cars and appliances),” the study found. “Instead, most of the spending went to food, beauty and other non-durable consumer products.”

For people whose income dropped, the stimulus was a lifeline to help them pay their regular bills without ending up with late fees or expensive debt. “Some of our clients who had already lost jobs due to the pandemic used their checks to meet current bills, including child care, tuition for college-age kids and everyday expenses,” says Mari Adam, a certified financial planner in Boca Raton, Florida.

[READ: Bills You Don’t Have to Pay During the Coronavirus Pandemic.]

Build Up Your Emergency Fund

If you can afford to pay your bills now, using the money to build up your emergency fund can help you avoid financial trouble if your situation changes — which could easily happen with the unstable job market and special COVID-related issues, such as unexpected child care bills if your children are attending school remotely for the next several weeks while you work. “I’ve recommended that clients look to increasing their emergency fund as a top priority with any extra money they receive in the next few months, especially for those who are in particularly vulnerable industries like travel and in-person services and those who anticipate additional child care expenses in the coming weeks due to COVID,” says Natalie Taylor, a certified financial planner in Santa Barbara, California.

Pay Down High-Interest Debt

The study found that older individuals, those with mortgages, unemployed workers and those who lost earnings due to COVID were more likely to report using their checks primarily to pay off debt. And if your income is still stable, the money could help you make a big dent in your debt payments. “If you’ve got credit card debt and your income is expected to be secure, use this as a chance to pay that down aggressively,” says Carney. When you spend less money on interest, you’ll have more to set aside for other goals — regardless of your age or financial situation.

“My twenty-something daughter is fortunate enough to work for a big employer and has a secure job, but she decided to use her stimulus check to pay down a high-interest rate credit card balance that she’s been carrying,” says Adam. “That’s a decision that will earn her more than 10% in guaranteed savings.”

Even if you don’t have high-interest debt, you may be able to save money by refinancing. Taylor is recommending that some clients use the extra money to help pay closing costs to refinance their mortgage to a lower rate, which will save interest over time and reduce their monthly payments.

Save for Retirement or Avoid Tapping Your Retirement Savings

If you have your other bases covered, you can use the money to save for retirement in a tax-advantaged account — the survey found that higher-income individuals were more likely to save than pay off debts. “If you’re one of the 17% of baby boomers with less than $5,000 saved for retirement, here’s your chance to start fixing that,” says Carney. “Consider contributing to a retirement account and putting together a plan to keep this momentum going.”

If your modified adjusted gross income is less than $139,000 for single filers, or $206,000 if married filing jointly, you can contribute to a Roth IRA. You can withdraw your contributions without taxes or penalties at any time — serving as a back-up emergency fund — and you can withdraw the earnings tax-free after age 59 ½, as long you’ve had a Roth for at least five years.

[Read: 10 Painless Ways to Save More for Retirement.]

If you’re already retired, the stimulus money can help you avoid withdrawing money from your savings this year. “I had probably five retiree clients who, between the stimulus payment, staying home more, and having travel plans put on hold, opted to stop their monthly withdrawals from their IRAs to reflect their reduced spending,” says Carney. They can keep the money growing in the tax-advantaged account for the future, especially since the CARES Act also waived required minimum distributions from traditional IRAs and 401(k)s this year. “I had one client who is a widow in her 80s and she was anxiously awaiting her $1,200 payment,” he says. “It was interesting and surprising to see that because her RMD was waived for 2020 it reduced her taxes by $9,000 over the prior year. Everybody is focused on the $1,200 stimulus payment, but in her case the waiver of the RMDs for this year ended up being a much bigger deal for her.”

Improve Your Home

“I’ve heard from several clients who have spent their stimulus money on improving their home environment,” says Carney. “When you look at the recent earnings numbers from Home Depot and Lowe’s, it’s clear they weren’t alone.” Now that people are spending so much more time at home, they’re more interested in spending money to make it nicer. The home improvements could add value to your home, or they could just make it more comfortable — two of Carney’s clients used some stimulus money to buy a fire pit.

Reinvest in Yourself

If your job is still in jeopardy, you could use the extra money to improve your future employment options. “If you work in a restaurant or other industry that’s been particularly hard hit by this, I would seriously consider reinvesting in yourself,” says Carney. “What skills can you obtain that will make you more economically resilient if this lasts longer than we all hope? Can you learn to code, learn a trade, get additional professional credentials or improve yourself in some way?” Consider professional development programs that can help you earn more money or add more job stability.

Give It Away to Help Others

Some of Adam’s clients who were doing well financially gave their stimulus payments to local organizations that help people who were hit harder by the pandemic. “One client decided to donate the stimulus money to a local relief fund supporting hotel, hospitality and other workers who had lost their jobs,” she says.

[Read: Is Another Stimulus Check Coming?]

Carney works with several people who made the same decision. “Most of my clients are retirees and experienced no loss in income at all, yet were eligible for the stimulus payment as long as they met income requirements,” he says. “Several of them decided to donate their stimulus check because they didn’t feel it should have gone to them to begin with.”

More from U.S. News

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