Fed Study Finds that Americans Used Most of Their Stimulus Checks for Saving and Paying Off Debt

A recent study published by the Federal Reserve Bank of New York (Fed) found that the CARES Act’s economic relief payments in March were primarily used to boost Americans’ savings and to pay off debt. About 36 percent of the payments households received were saved, and roughly 35 percent was put towards paying down debts.

The data suggests, according to Business Insider, that Americans have more spending power to drive the economy in the future. Fed researchers said in a blog that the smaller consumption pattern was likely caused by “the unprecedented high uncertainty about the duration and the economic impact of the pandemic, the social distancing rules and restrictions on in-person shopping, and delayed rent payments.”

Furthermore, Americans used 18 percent of households’ checks to buy essential goods and less than 8 percent to buy non-essentials. Households that experienced unemployment or unexpected drops in income used a larger amount of their checks to pay off debts.

Another survey asked Americans how they anticipated using a possible second round of stimulus payments. Responses to that survey found that 45 percent would be allocated to savings and 31 percent would be used to pay down debt. Spending on non-essentials remained about the same, while spending on essentials fell to 14 percent.

The Fed also studied how households spent expanded unemployment benefits: roughly 50 percent went towards paying off debt, 23 percent towards savings, 24 percent towards buying essentials, and only four percent towards purchasing non-essential goods.

“These findings indicate that the economic impact payments, by increasing both household income and the debt pay down, contributed importantly to the sharp increase in the overall saving rate during the early months of the pandemic,” the Fed researchers wrote.