On March 27, 2020 the CARES Act was signed into law, designed to offset the negative impact of COVID-related business shut-downs. A big part of the bill was sending out $1,200 stimulus checks to taxpayers, which most people received by the end of April. How has that money been spent?
The $1,200 stimulus check was a major part of the government’s effort to offset mandated business closures, which led to massive job layoffs. A family of 4 received upwards of $3,400 in stimulus money, which is a tidy sum!
Stimulus checks aren’t new. President Bush’s tax cut bill in early 2001 sent “rebate” checks to most taxpayers. And in 2008 the government stepped up with a round of checks for taxpayers as the U.S. economy started to hemorrhage from the global financial crisis.
The size of the CARES Act checks dwarfed the amounts that were sent in 2001 and 2008. All-told, $275 billion of checks have been sent out as of mid-June.
There’s been speculation as to how consumers would use this money. Would they save it, spend it, or use it to pay down debt?
A recently-released report on consumer finances sheds some light on the subject. Each month, the Federal Reserve reports total outstanding consumer debt totals, such as credit cards, auto loans, and student loans.
This report shows that through May, consumers have paid down over $100 billion of credit card debt since the end of February. That’s a huge decrease in such a short period of time.
Putting this into context, of the $275 billion of stimulus checks sent out, over 35% of those funds have been used to pay down credit cards.
This sort of prudence on the part of the American consumer flies in the face of many who thought the checks would be blown on new TVs.
How did you use your stimulus check? For our household, we had a well-timed break-down with our heat/AC unit so our check was spoken for before we could decide what to do with it!
Wondering how this affects your future finances? Schedule a call with Financial Design Studio, financial advisors in Deer Park, to discuss your portfolio today.