|The US now has 22 million people out of work due to the Covid-19 pandemic. / Photo by Sam Wordley via Shutterstock|
The US now has 22 million people out of work due to the Covid-19 pandemic. As a result, lawmakers have proposed giving stimulus checks or economic impact payments to provide financial relief to eligible Americans. The checks already handed to tens of millions of people in the US have served as a cushion to the economic blow of the pandemic.
Spending increased 3 days after receipt of stimulus check
To know how fast Americans are spending their stimulus checks and what they are buying, economists analyzed the saving and spending habits of over 1,600 people who received their stimulus checks by April 21 in an approximate 6,000-person sample. The stimulus check is meant to stimulate the economy by providing consumers some spending money.
The result of their study shows in the first three days after eligible Americans received their stimulus check, their spending grew between $50 to $70 individually on expenditures, such as food and non-durable goods. In the category of nondurable goods that people purchased are laundry detergent, paper, pens, and other items that have a shorter life span.
In the same period, their spending on durable goods also rose to $20. Under this category are furniture, appliances, cars, and other things that are meant for longer use. The breakdown of these items was published by financial news platform MarketWatch.
Overall, household spending of around one quarter to one-third of their stimulus check was evident within ten days of receipt. For those with less than $500 in their account, they already spent almost half of their stimulus check within ten days. For those with more than $3,000 in their accounts, they did not report any extra spending after receiving the stimulus check.
|A category that saw an increase was spending on food delivery. / Photo by Andrew Angelov via Shutterstock|
Furthermore, an individual who earns less than $1,000 a month was found to be twice as likely to spend their stimulus check after receiving it compared to people earning at least $5,000 per month. The researchers noted that it shows a similar historical pattern from the stimulus program adapted in the 2008 economic downturn. Back then, up to 90% of stimulus check recipients purchased durable goods, particularly cars. Some used the money to keep a roof over their head and food on their table.
Stimulus checks and getting the economy going
Columbia Business School Professor R. A. Farrokhnia, who co-authored the study, told MarketWatch that the consumer behavior of the 2020 recipient of stimulus checks is different compared to the 2008 recipient of the stimulus package. Although many people were affected by the economic shutdown in the past two months, they don’t find it necessarily alarming that more money was going to rent, food, bill, and other nondurable than durable items. He noted that, after all, a family may not want a stranger coming into their house to install a new appliance or they have no reason to purchase a car since there are limited places to visit due to the Covid-19.
Most outlets for possible consumer spending have been shut down because of government orders to stay at home during the pandemic. However, some restaurants stayed open for deliveries and pickups. A category that saw an increase was spending on food delivery. The revenue in the online food delivery segment in the US in 2017 amounted to US$18,332 and increased to $20,147 in 2018. In 2020, the segment amounted to $26,527.
In a March 2020 Statista survey of a consumer in the US, 41.7% respondents said that they were likely to purchase restaurant food delivery online if confined to their homes during Covid-19 pandemic, while only 15.8% said they are unlikely to purchase and 13% said they will not purchase food online due to home isolation.
Farrokhnia went on to say that only time will tell how Americans will use all their stimulus money. Many of them may choose to save the money to see what the future holds. However, he is not sure if the $1,200 stimulus checks will be enough to stimulate consumer spending and fuel the economic recovery.
Worst ways people are using their stimulus checks
Meanwhile, Yahoo Finance details the worst ways people are using their stimulus checks. Top of their list is splurging on online sales. As of March 2020, more than a third of consumers in the US expected that they would increase their spending on goods from online marketplaces, such as Walmart and Amazon, because of the coronavirus. On the other hand, 47% do not expect their online spending behavior to change and only 9% said they would spend less on goods from online marketplaces. This was based on a recent survey by database company Statista.
Yahoo Finance warned that although it is tempting to use the “free money” on things that one has always wanted, there is no guarantee of having a second round of coronavirus stimulus checks. At the moment, people may not need the money to cover their monthly expenses. However, they would wish to set it aside if their financial situation changes. It is best to have enough emergency cash that can cover at least six months of essential costs.
Putting the money directly toward debt is also one of the worst ways Americans are using their stimulus checks. Although people may see it as an opportunity to pay off a big part of their debt, it is not a wise move right now. This is especially the case if they don’t have an emergency fund during the pandemic. The platform advised people to know whether their creditors will give them a break while there is a pandemic.
Jasmine Vanterpool, a 35-year-old grocery store supervisor from Albany, New York, planned to put her $1,200 stimulus money towards her student-loan payments before the money hit her bank account. She also shared that she will be putting her money into car insurance, and will donate to help out local bartenders and restaurant workers. She said it is probably the first time that she doesn’t have to worry about living paycheck to paycheck.
Consumers may not yet be anticipating an economic restoration but, at the very least, the coronavirus relief efforts have helped boost people’s buying attitudes as evidenced by US consumer sentiment in May.