Michele Schneider, managing editor of the MarketGauge Group, Scott Martin, CIO at Kingsview Wealth Management, and Nicole Webb, senior vice president of the Wealth Enhancement Group on their outlook for the market.
Stimulus payments have been a pandemic lifeline for many Americans. For some young people, they represent an opportunity to accumulate savings or pay off debts.
Most adults who reported having received the second stimulus check, issued around the new year, used them to pay for household expenses, including utilities and telecommunications payments, according to recent data from the US Census.
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The uses of stimulus payments varied by age group. About 54% of people aged 25 to 39 reported in the Census survey that they mainly used stimulus money to pay off debt, and 26% said they saved it mainly during the period 6 to 18 January. In comparison, about 57% of people aged 40 to 54 said they mostly paid their debts, and 22% said they mostly saved them.
Some are undecided on what to do with the $ 600, given the uncertainty surrounding the economy, the pandemic and the possibility of further stimulus.
“If you can’t wait for what’s going to happen in the next few months, you have no incentive to really spend,” said Cameron Turner, 23, who lives in Berkeley, California. While Mrs. Turner remained employed in her public relations work, she decided to put the check in her savings account for the rainy day.
With the unemployment rate at 6.3%, many Americans remain concerned about financial security. Last week, 779,000 workers applied for unemployment insurance, according to the Department of Labor.
Typically, up to half of stimulus checks, on average, are spent by people, said Jonathan Parker, a professor at MIT Sloan School of Management who studied the use of economic impact payments in the 2001 and 2008 recessions. Although it is too early to chart demographic distinctions in the use of 2021 checks, he said this time it’s definitely different.
“The ability to consume has been interrupted in several dimensions. So, there are a lot of people who used to go to restaurants and have fun and spend a lot of money in bars and it just went away. ”Said Mr Parker. “In addition to the streaming service, you are not going out and spending a lot of money.”
For the first stimulus payment distributed in the spring of 2020, almost 60% of those who received or expected to receive a payment reported that they planned to spend the check on expenses. Debt payment was the second most reported use, with 13%, by respondents in the Census survey in June 2020.
Credit scores continued to improve and credit card debt fell for the first time in eight years, according to Experian. The credit reporting company reported that consumer credit card debt fell by 14% in 2020. Average credit card debt held by the millennium generation fell by 11%.
Experian also reported that people reduced credit use and defaults in 2020.
Some say they feel compelled to reduce financial obligations.
Ruth Estrella, 28, who has not had a steady job since May, applied the $ 600 to her credit card with the lowest balance. In doing so, she said that she felt she was making progress in paying off her debt.
“It’s something, but it’s nothing,” she said.
Even for some people who spent their first stimulus check, the second was sometimes for payment of debts or savings.
For Kate Sumser, a law student who lives in San Francisco with her partner, using the savings or debt stimulus check was not an option. The first stimulus check was for rent, groceries and bills. The couple has relied on her student loans to survive.
When they received the second stimulus check earlier this year, they knew immediately that the money would go towards their credit card payments.
“The ideal would have been to save him,” she said. “But there was no choice.”
Ms. Sumser is hopeful for a new wave of stimulus. But until the pandemic is stopped, it hopes to take on more and more debt.
Meanwhile, the amount of money that people are putting into savings accounts continues to increase. An analysis by the Federal Reserve Bank of New York found that consumers saved more than a third of the first stimulus checks.
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The climate has changed significantly since last April, said Matthew Tarka, a recent graduate who works in finance. He was willing to spend part of his initial stimulus check on a plane ticket to see his parents last spring. However, he said the length of the pandemic made him and his friends think differently about this payment.
“I think people are probably saving a little more this time because I know a lot of people who have been unemployed since the last stimulus check came out,” he said. “I see my friends being a little more frugal with this.”