Heads Up Retailers: Consumers Plan to Save, Pay Down Debt with Next Stimulus Checks

Don’t expect a mad rush to the stores as people get their new stimulus checks authorized in March under the American Rescue Plan Act.

In a recent report, Liberty Street Economics says that people will focus on savings or paying down debt with their most recent stimulus check.

If this may seem to be a departure from previous spending patterns that is because it is. As each new stimulus check came out, people focused less on consumption and more on savings. The amount set aside for consumption fell from 29% in the first round to 26% in the second and 25% in the third, according to Liberty.

Last month, Liberty found that 32% of households have already received their third stimulus. Overall, it found that respondents would use 25% of this money for consumption. Thirteen percent was expected to be spent on essential items, while 8% would be used for non-essential items. Thirty-seven percent of household heads without a college degree were more likely to use the stimulus for paying down debt, while 27% of those with a college were planning to use it for that purpose.

In the second round of $600 stimulus checks, issued as part of the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act, Liberty reported that 68% of households had received an average of $1,314 ($1,200 median) in stimulus funds.

Liberty found that households earmarked an average of 16% of the second-round stimulus funds for essential spending. Six percent was used for non-essential spending, while they are donating 3%. Additionally, respondents said they were planning to use 27% of their checks for saving and 37% to pay down debt.

This is consistent with how people spent their first stimulus checks that came out in April 2020 as part of the CARES Act. After receiving those funds, households spent 29%, saved 36% and used 36% to pay down debt. In August, when surveyed about a potential second round of stimulus checks, 24% expected to use the funds for consumption. Thirty-one percent expected to use them to pay debts, while 45% expected to put the money into savings.

Stimulus payments have been expected to keep retailers afloat.

Last month S&P Global Market Intelligence anticipated that the third round of stimulus checks, which distributed $1,400 to individuals making $75,000 annually or couples earning $150,000 annually, would benefit e-commerce giants like Amazon, Walmart and Target.

Earlier stimulus checks have contributed to increased online spending, particularly for discretionary goods like wearables, gaming and appliances. The $1,400 stimulus check is larger than the previous two rounds of $600 and $1,200, providing a good case for further increases in online spending, S&P Global Market Intelligence said. To be sure, the Liberty Street survey doesn’t negate this forecast—but it may diminish its punch.