American Consumers Are Spending Tax Refunds as ‘ Free Money’
● A sizable portion of Gen Z and Millennials are using their tax refunds for splurging on nonessentials.
As the tax filing deadline of April 15 approaches, many Americans are gearing up to receive and spend their tax refunds. A previous report by WWD found that more than half of Americans are filing earlier this year to get their refund sooner. Already, the IRS has paid out $135 billion in tax refunds with the average tax refund equating to just over $3,000.
Despite early filers, data from Trustpilot conducted by Attest and surveying 999 U.S. adults over the age of 18 found that 53 percent of Americans ages 18-24 haven't filed their taxes yet — with one in 10 respondents reporting that if they owe money, they wouldn't be able to afford it.
For Americans aged 18-24 who don't receive a sizable tax return, they report that they would consider delaying bill payments for the cost of living (29 percent), wouldn't be able to afford household items (24 percent) and would consider delaying loan payments (13 percent).
The areas the survey respondents noted will be most financially impacted include groceries and household items
(40 percent), gas and transportation (37 percent), travel and vacations (34 percent) and dining out (33 percent).
Meanwhile, a recent report by Qualtrics on behalf of Credit Karma surveyed more than 1,900 adults over 18 who plan on filing their taxes this season. The report's authors found that a quarter of American taxpayers view their tax money as “free money.”
Notably, 26 percent of tax filers already used or plan to use their refund to spend on non-necessities they wouldn't normally buy such as clothing and accessories (45 percent), electronics (40 percent) and shoes (37 percent). Meanwhile, 17 percent of all Americans reported they plan to use their refunds on travel and nonessentials such as dining out, clothing and jewelry.
The tax refund splurge is most prominent among younger consumers — with 39 percent of Gen Z and Millennials admitting to plans to splurge.
The report's authors suggest that these splurging behaviors could be tied to American's perception of what their tax refund is. Gen Z (35 percent) and Millennials (29 percent) are the most likely to feel that their tax refund is “free money.” Furthermore, the report found that 64 percent of taxpaying filers who received a refund have already used some or all of it — with 28 percent of people reporting they spent all of it.
Despite this splurging consumer behavior, Credit Karma's report found that taxpayers who receive a refund will use it to make financial progress. Forty-one percent of taxpayers polled who received a refund reported putting some or all the money into savings. And 27 percent of people said they put their refund toward paying down debt.
In line with previous WWD reports, 56 percent of all taxpayers surveyed said their dependence on tax refunds is attributed to the rising cost of living.
“Tax refunds are often the biggest windfall of the year for many Americans,” said Courtney Alev, consumer financial advocate and head of tax at Credit Karma. “With the rising cost of living, we continue to see more and more people use their refund to pay for necessities, which likely means fewer Americans are making progress on their other financial goals like building savings and paying down debt.”