Most Americans expected to save, not spend, checks
$600 will still be lifesaver for millions out of work
Galen Gilbert knows just what he will do with the check he gets from Washington as part of the pandemic relief package, whatever the amount: put it in the bank.
“I’ve got more clients than I can handle right now, and I’ve made more money than I usually do,” said Mr. Gilbert, a 71-yearold lawyer who lives in a Boston suburb, “so I’m not really suffering financially.”
President Donald Trump’s demand to increase the already approved $600 individual payment to $2,000, with backing from congressional Democrats, has dominated events in Washington this week and redefined the debate for more stimulus during the pandemic. Senate Majority Leader Mitch McConnell said Wednesday he would not allow a vote on a standalone bill increasing the checks to $2,000, dooming the effort, at least for now.
Whatever the amount, the reality is most Americans right now are much more likely to save the money they receive.
Of course, the money will be a lifesaver for the roughly 20 million people collecting unemployment benefits and others who are working reduced hours or earning less than they used to. But for the majority of the estimated 160 million individuals and families who will receive it, spending the money is expected not to be a high priority.
After an earlier round of $1,200 stimulus checks went out in the spring, the saving rate skyrocketed and remains at a nearly 40year high. That largely reflects the lopsided nature of the pandemic recession that has put some Americans in dire straits while leaving many others untouched.
Economists on the right and left of the political spectrum said when otherwise financially secure people receive an unexpected
windfall, they almost invariably save it. The free-market economist Milton Friedman highlighted this phenomenon decades ago.
Many experts said a truly stimulative package would have earmarked the payments for those who need it most — the unemployed.
“We know where the pockets of need are,” said Greg Daco, chief economist at Oxford Economics. “Putting it there would be a much more efficient use of the stimulus.”
And because the money will immediately be put to work — the jobless don’t have the luxury of saving it — it would also have a much bigger impact on the overall economy, through what experts refer to as the multiplier effect. In essence, each dollar given to a person in need is likely to benefit the economy more because it would be used to pay for, say, groceries or rent.
Individuals with an adjusted gross income in 2019 of up to $75,000 will receive the $600 payment, and couples earning up to $150,000 a year will get twice that amount. There is also a $600 payment for each child in families that meet those income requirements. People making more than those limits will receive partial payments up to certain income thresholds.
A more effective approach, experts say, would have raised unemployment insurance benefits to the jobless by $600 a week, matching the supplement under the stimulus package Congress passed last spring, rather than the $300 weekly subsidy the new legislation provides.
Democrats had pushed for larger payments to the jobless and included it in legislation that passed the House, which they control. But the measure met stiff resistance from Republicans,
who control the Senate, and was not included in the final compromise bill.
The money could also have been used to extend two key unemployment programs for much longer than the 11 weeks provided in the new bill. The current extension runs only until midMarch, well before mass vaccinations are expected later in the spring and summer and the economy begins to return to normal.
Roughly 20 million Americans are collecting unemployment benefits, and the jobless rate stands at 6.7%. One year ago it was 3.5%, a half-century low.
And there are signs with the economy sputtering, more Americans are giving up — more than half a million people stopped looking for work and dropped out of the labor force just last month, meaning they are no longer counted among the unemployed.
To be sure, the money from Washington will be welcomed by most Americans, even if they are financially secure. Besides saving it, others will use it to pay down debt or invest it.
A study released in August found recipients of the $1,200 payments sent out in the spring largely held off on spending the money. Only 15% of people said they had spent it or planned to spend it.
Of course, some of the money flowing into the economy could soon reach those who need it most. And it will provide a financial cushion even for middle-class families who are secure by most measures but remain on edge from the turbulence of 2020.
But in terms of the multiplier effect, it’s likely to pale in comparison to the impact in the spring when the unemployment rate was much higher, and there were real fears the country could experience a second Great Depression.