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Stimulus-Check Destinations: Debt, Savings, Investments
Buying Sprees Down the List
Twenty-five percent of those receiving checks as part of the government’s $168 billion economic-stimulus package plan to save or invest the money instead of spending it right away, according to a survey by Kansas City, Mo.-based American Century.
The government hopes the influx of cash to 130 million households — estimated to be $600 for individuals and $1,200 for couples — will give the sagging economy a shot in the arm. The total amount to be pumped into the economy is equal to about 6 percent of the current federal budget.
But only 27 percent of consumers plan to spend their windfall immediately, according to the survey. Thirty-six percent of consumers surveyed say they’ll use the money to pay down debt. The remaining 12 percent will do something else with it or don’t expect to receive a check.
Those at the youngest and oldest ends of the age spectrum are most likely to save or invest their economic-stimulus checks. Thirty-two percent of those under 25 and 31 percent of those over 65 say they’ll save or invest the money. Fifty-one percent of those between 25 and 34 plan to reduce debt.
Of those saving or investing the money, 47 percent say they’ll put it in a savings account. A variety of destinations accounts for the rest: certificates of deposit (15 percent), money market accounts (13 percent), mutual funds (12 percent), stocks (8 percent), bonds (1 percent) and other channels (5 percent). Among those under age 50 in this category, 57 percent plan to put the money into a savings account, while 21 percent of those over 50 say they’ll invest in a mutual fund.
American Century conducted the online survey in late January among a panel of 1,500 U.S. adults.
A survey of mostly working Americans by Principal Financial Group turned up somewhat different results. In this survey, 67 percent of respondents say they’ll use their economic-stimulus checks to reduce debt; 45 percent will put the money toward short-term debt and 22 percent will use it for long-term debt. Forty percent of those surveyed plan to save or invest the money. Only 6 percent of the respondents are using their checks to go on a buying spree.
Principal Financial conducted its online survey with Harris Interactive between Jan. 28 and Feb. 3 among 1,316 employees and 589 retirees.
That so many consumers are intent on reducing debt instead of spending or investing their money isn’t surprising, says James J. Holtzman, an investment adviser with Pittsburgh-based Legend Financial Advisors. In 2001, when the government offered a similar economic-stimulus package, many recipients opted to pay off debt.
“In 2001 we were facing an investment crisis where equity stock markets had fallen sharply,” Holtzman says. “Today we are in a situation where equity markets are also down or flat, but consumer debt is also very high. There is even more pressure this time around for people to try to reduce debt than to spend if they get a windfall.”
Kate Fitzgerald is a free-lance writer based in Scottsdale, Ariz., specializing in business and technology.