Americans saved over $1 billion in the first three quarters of 2020, largely thanks to stimulus checks and curbed spending habits due to the pandemic. The boost in savings is expected to speed up recovery when the economy potentially opens up later this year.
Lawmakers recently issued $600 stimulus checks as part of the latest round of coronavirus relief after earlier benefits from a previous relief package, which included $1,200 checks, were about to expire.
Data from the Federal Reserve found that consumers primarily saved their checks or used them to pay down debts. Americans saved an average of 36% of their payments, while 35% of the payments were used to pay down debt.
According to Commerce Department data, the U.S. savings rate, or the average portion of after-tax income saved by Americans, has hovered around 12% to 15% from August to November.
Research from the National Bureau of Economic Research notes that lower-income consumers are more likely to spend their checks immediately. Consumers with less than $100 bank account balances spent over 40% of their payments in the first month, while individuals with more than $4,000 balances barely spent at all.
Economists have optimism for the future ahead as vaccine distribution brings back jobs from hard-hit sectors, such as bars and restaurants, and allows for more spending on items like haircuts, vacations, movie tickets, and elective medical procedures.
“In this unusual recession, governments have been unusually generous, people have not been able to spend the money, and hence they have the money and the will to spend,” said Berenberg’s chief economist Holger Schmieding. “There will be a lot of spending—my guess is that beaches will be crowded, the pubs will be crowded. By May or June, it will be in full swing.”
President Biden and congressional Democrats have proposed another $1.9 trillion coronavirus stimulus package with additional $1,400 checks and additional funding for social programs and vaccine distribution.
However, some have speculated that stimulus checks could become the new norm for handling economic catastrophes in the future. Others argue that non-targeted federal aid benefits the wealthy and only provides surface-level aid to low-income families.
Andrew Biggs of the American Enterprise Institute and Joshua Ruah of the Hoover Institution argued in The Hill that loans up to $5,000 payable with future Social Security benefits would be the more fiscally prudent option.
Rep. Brendan Boyle, a Democrat from Pennsylvania, argued that the most significant appeal in stimulus checks is that they can be explained in a single sentence.
“As we come up with policy proposals and they get refined, and they become more complex, frankly, they just become harder to sell to the American people,” said Boyle. “The more our side can deliver immediate help to people, the better off we will be politically.”