Research and Statistics

Poll: Half of America won’t spend their ‘stimulus’ rebate


The president wants us to spend it, but most say saving and paying off debt are higher priorities for their economic stimulus rebate checks.

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President Bush expects Americans to go out and spend the economic stimulus tax rebate that’s coming soon. But a new poll sponsored by says half of Americans don’t plan to spend the money at all, and those who do are more likely to pay existing bills. If they follow through, it will reduce the effectiveness of the stimulus on the ailing U.S. economy.

Speaking at the White House on March 7, the president discussed the tax rebates that will be sent this spring to 130 million U.S. households. “When the money reaches the American people, we expect they will use it to boost consumer spending,” Bush said.

No, we won’t, say half of the representative sample of American adults surveyed by telephone in the poll, conducted March 7-9 by GfK Roper Public Affairs and Media for About half of Americans don’t have spending in mind, with 26 percent saying they’ll pay off some debt, and 24 percent planning to save it.

Another 36 percent say they plan to spend the money, but most of those say it will go toward necessities such as groceries or utilities — money that likely would have been spent anyway.

Just one in 10 (11 percent) say they will spend on discretionary items such as clothing, vacations or restaurants.

How people plan to spend the money they receive from their federal tax rebate check
Graph of how people plan to spend their federal rebate checks
Source: poll by GfK Roper, of 1,004 American adults. Margin of error +/- 3%. Details

Spending good for country, not for individuals
Whether spending the money is good depends on your point of view. From a national perspective, direct and additional consumer spending would provide a booster shot to an economy teetering on recession.

“The basis for why this tax rebate is to be stimulative to the economy in the immediate future is predicated on the hope that people will spend the rebate today, as opposed to saving it for the future,” says Jason Nazelrod, a financial planner from Nazelrod & Associates, a financial services firm in Towson, Md. “If the majority of taxpayers spend their rebates, as is expected, this would have a direct positive effect” on the economy.

From an individual point of view, financial experts say that this money provides a golden opportunity to save and pay debt.  “The best long-term use of that money is to pay down debt and establish a rainy-day fund,” says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling. “You’ve got to have your personal financial infrastructure in place before you begin building.”

"There's nothing fundamentally patriotic about spending money you don't have." -- Michael Rubin, author of "Beyond Paycheck to Paycheck"
— Michael Rubin,
author of “Beyond Paycheck to Paycheck”

“There’s nothing fundamentally patriotic about spending money you don’t have,” says Michael Rubin, author of “Beyond Paycheck to Paycheck.” “Using your rebate to increase your savings or decrease your debt might very well be your best financial move. Still, each person who chooses not to spend his check reduces the effectiveness of the rebate’s stated purpose: to stimulate the economy.”

Other survey findings were:

Younger adults (age 18-34) are the least likely age group to use the rebates for splurging on discretionary purchases. Just 8 percent say they’ll do so.
Older Americans (65+) are least likely to use their rebates for paying off debt.
Lower-income Americans (those making less than $30,000 a year) are most likely to spend their rebates on necessities, such as groceries or utilities, rather than putting the money toward savings, debt or discretionary items.
Lower-income Americans are more likely to spend on necessities than their higher-income counterparts.
The higher the income, the higher the likelihood of saving. Three in 10 of those making $50,000 or more say they’ll sock the rebate into savings.
Men seem more likely to pay off debt, while women are more likely to set aside the tax rebates for savings.
Consumers in the West are more likely to use their rebates to pay off debt than those in the Northeast.
Consumers in the South and Northeast are most likely to use their rebates for necessities.

How much do I get?
Under the stimulus package recently approved by Congress, more than 130 million U.S. households will receive special payments beginning in May of this year. For the majority of those who pay federal income taxes, the payments will amount to as much as $600 per adult, plus $300 per child.

Wealthy consumers may not get any money back: Payments start to phase out for singles whose adjusted gross income tops $75,000 and for married couples whose joint income surpasses $150,000.

Experts were pleased to see younger consumers vow to use their rebates for paying off debt, savings or for buying basic necessities. The data showing younger consumers are less likely to splurge with their rebate checks “flies in the face of assumption that younger adults tend to be more frivolous with their spending,” Rubin says. Anecdotal stories support this finding, says Rozanne Andersen, executive vice president and general counsel for debt collection trade group ACA International, something she labels “very encouraging.”

The feedback from younger consumers could also stem from the fact that they have less flexibility when it comes to spending. U.S. workers just entering the job force may forget about payroll deductions from income taxes, retirement contributions and the like, while younger workers also potentially have to deal with the costs of college debt and taking care of both children and elderly parents, says Michael Eisenberg of Eisenberg Financial Advisors in Los Angeles. That means they have less money to burn than more seasoned employees.

The elderly were by far the age group least likely to pay off debt with rebate checks, with just 15 percent saying they’ll go that route. Rubin isn’t surprised. “That’s expected because you’d hope those 65 and above are on a fixed income,” he says “At least compared to the younger folks in society they are less likely to need to use the rebate for their debt.” Eisenberg agrees. “Older Americans don’t have as much debt as younger Americans,” Eisenberg says, citing the fact that older consumers may have already paid off their mortgages and are living on an already-determined budget that provides less flexibility.

Lower-income Americans are most likely to spend their rebates on necessities, such as groceries or utilities, with 32 percent saying they intend to do so rather than putting the money toward savings, debt or discretionary items, than their higher-income counterparts. The wealthy put their rebate toward savings “because they can,” says Andersen, while those of more modest means put the money toward nondiscretionary purchases “because they must.” For consumers living paycheck to paycheck, “they may not have money to pay off their debt,” Eisenberg says, instead needing the funds just to cover basic expenses. “The less income you have, the more income percentage-wise is going to necessities.” Still, lower-income consumers will be doing their part. Cunningham reminds consumers that even staple purchases help stimulate the economy.

Higher-income consumers, meanwhile, appear to be the income group most likely to use their rebates for savings and least likely to spend their rebates on necessities. These high-earners may have less debt and tend to have more flexibility with their money, Eisenberg says.

When it comes to differences among the income groups who plan to pay off some debt, Rubin notes that there is no obvious trend line. Middle-income consumers — those making $30,000 to $39,999 a year — are the most likely to say they’ll pay off some debt, at 42 percent. There is otherwise little difference between those on either end of the earnings spectrum. “Americans’ need to pay off some of their debt moves independently of their income level,” Rubin says. “People across the board recognize the value in paying down debt,” Cunningham says.

“Most people are not in a position where they can spend $1,200 dollars” frivolously, Rubin says. Rather, the bulk of U.S. consumers will need to put the money toward getting their financial houses in order.

Gender differences
The poll results also showed a difference between men and women’s plans. Men are more likely to say they’ll pay off debt; women are more likely to use it for savings.

Cunningham says that split could be due to the way couples often divide responsibilities, with either the man or woman in charge of finances. “Whoever is responsible for paying the bills is more concerned about paying down debt,” Cunningham says.

Another possible explanation for the split stems from the different ways the two sexes handle money, which could leave men with a greater share of debt. “Women are a little more conservative in their finances whereas guys go out and buy the big screen TV or the truck,” Eisenberg says. With women not as burdened by debt, they may be more able to set aside the extra cash as savings.

Regional differences
Poll data also highlighted regional differences in the ways consumers said they plan to use the rebates. Consumers in the West are most likely (33 percent) to use their rebates to pay off debt; Northeasterners (21 percent) least likely. Consumers in the South and Northeast are most likely to say they’ll use their rebates for necessities (26 and 24 percent). One possibility is that consumers in the West have more debt than those in other parts of the country. “It could be that people in the West are more free-spending than those on the East,” Eisenberg hypothesizes. “People in certain parts of the country may slow down spending faster than in other parts.”

He also sees the regional differences in home prices and weather as factor. “Housing prices on the coasts and in metropolitan areas are more expensive than in the middle of the country,” he says. Warm weather may also encourage shoppers, who get out of their houses and rack up more debt at stores even during the winter months, when those in the colder states may prefer to hibernate at home. “There is the possibility that depending on where you live your spending may be determined by weather patterns,” Eisenberg says. He also highlights the need for cars in the western U.S., with public transportation systems more developed in the East. That means residents of the West could suffer a greater debt burden from auto payments.

Will they follow through?
What people say is often different from what they do. When rebate checks, typically amounting to $300 for singles and $600 for couples, were distributed randomly over 10 weeks between July and September 2001, consumers initially did attempt to increase their credit card payments. Soon enough though, consumers began spending again, according to research from the Philadelphia Federal Reserve.

"People are well-intentioned ... yet they continue charging." -- Gail Cunningham, NFCC's senior public relations director
— Gail Cunningham,
NFCC’s senior public relations director   

That behavior may be repeated by consumers with this latest round of rebates. “People are well-intentioned, and yet they continue charging,” says Cunningham. “I would expect that they pay down their debt and then they begin to incur more credit,” Andersen says. “That purchasing practice is symptomatic of our society as a whole.”

Know your situation first
Consumers need to analyze their own financial situations before following the president’s advice, experts say. “Nobody is going to protect you better than yourself when it comes to financial issues,” says Eisenberg. He recommends setting aside eight to 12 months’ worth of cash as a safety net, noting that consumers who end up out of work don’t want to be forced into taking the first job opportunity that comes their way.

Even if the tax rebates go toward paying off debt, that use of funds could still eventually support the president’s goal of shoring up the U.S. economy. As shown with the last set of tax rebates, consumers who tackle their debt may free up their credit lines. “Then they feel they have available credit and begin spending again,” Cunningham says.

Consumers who pay down debt are important for banks, also, since that provides lenders with their money and helps to reduce the U.S. debt load, Cunningham explains. When it comes to this latest round of tax rebates, “The best use of it is to pay down existing debt. And there is value in that on the side of the consumer and the lender,” she says.

Poll details 
The survey was conducted from March 7-9, 2008, by GfK Custom Research North America on behalf of, via random digit dialing phone interviews with 1,004 interview subjects. Interviewees were approximately split between males and females ages 18 and over, with 524 females and 480 males surveyed. The raw data was then weighted by a custom designed computer program that automatically developed a weighting factor for each respondent, employing five variables: age, sex, education, race and geographic region.

Respondents were asked the following question and asked to select one of the subsequent answers:

“Congress and the President have approved an economic stimulus package that includes tax rebate checks and tax breaks that may help jump start the economy. Which of the following do you plan to do with the money that you receive?

Spend it on necessities, such as groceries or utilities.
Save it.
Pay off some debt.
Spend it on discretionary things, such as clothing, vacations or restaurants.
Would you spend it on something else (Specify:).”

The total margin of error on weighted data for the full sample is + or -3 percentage points at the 95 percent confidence level.

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