How Americans used the third $1,400 stimulus checks compared to the first two, and what that shows

"We very much have a K-shaped consumer recovery."


The vast majority of Americans have received their third (and potentially final) pandemic stimulus checks — and new data from the Census Bureau shows how they're spending that money.

As with the previous two rounds of stimulus, many people spent the money on everyday expenses: Food still topped the charts as the biggest line item, though its popularity fell slightly. Significantly fewer people, less than 50%, used their check to buy food, especially in comparison to the first check, where 71% of recipients spent their money that way.

There were big changes in other spending categories too.

A more specific follow-up question allowed respondents to pick multiple categories of spending, and showed that spending on utilities and personal products and household supplies fell. There was, however, a modest increase in the percentage of people who spent their stimulus money on clothes, which correlates with the almost 10% increase in retail spending that happened in March, according to the Commerce Department. Clothing stores in particular saw sales rise by almost 20%.

Splurge spending was also up in March: Sales of champagne were more than double what they were during the same period last year.

Chipping away at debt also remained a popular way to use the stimulus: Half of Americans put the bulk of the third check, which topped out at $1,400 per person, towards paying it down.

More people put their money into savings this round than they did in the previous two. Almost a third of stimulus recipients used most of the money to pad their savings and investment accounts, compared to about a quarter of people in the previous two rounds.

With payments to personal debt and saving or investing increasing, it seems clear that more people were comfortable enough financially to sock away at least some of their third stimulus check for a rainy day. Considering that a different Bankrate survey from January found that nearly 40% of Americans couldn't afford to pay a $400 emergency bill, that could be a good indicator of the nation's financial health.

Stimulus helped keep two-thirds of Americans afloat

The shifts in how Americans used their third stimulus check are positive indicators that more people are feeling financially stable one year into the pandemic. But they don't mean that most people have totally recovered from the economic havoc that Covid wreaked on many households last year.

More than two-thirds of Americans said the third stimulus check was important to their near-term financial situation, according to a recent Bankrate survey. That number was even higher for people making less than $50,000 a year.

"As the economy continues to recover and as people get called back to work, the need for immediate support isn't as great as it once was," says Greg McBride, chief financial analyst at Bankrate. Put more specifically, "the number of households in need of immediate support has diminished over the course of the last year."

That's backed up by other big indicators like the personal savings rate — the percentage of income that people don't spend — which spiked after the first two rounds of stimulus. Overall credit card debt also fell significantly in 2020.

While those indicators portend that the worst may be over, plenty of people still feel like they're on shaky footing, McBride says.

"What stood out was how little change we've seen through three rounds of stimulus in terms of how many people say this is important to their near-term financial situation," McBride says. There has also been little change in "how the money is being used. Monthly bills and day to day essentials continue to be the predominant uses of stimulus funds, just as with the two previous rounds."

The concept of these two competing ideas — that the economy and personal balance sheets are improving while people themselves still feel unsteady — is likely to be a dominant narrative in 2021, McBride says.

"We're likely to see the fastest pace of economic growth since the early '80s, but by the same token, we will see long-term unemployment becoming more of an issue," he says. "And we also have yet to see the defaults, bankruptcies, and foreclosures that many households will eventually encounter because of widespread payment relief" that has been keeping them afloat until now.

Suze Orman explains emergency savings

Video by Stephen Parkhurst

People who are currently flush with cash, either from stimulus checks or tax refunds, would be wise to continue using the money to pay off high-interest debt, like that incurred by credit card spending, while also padding their savings, McBride says.

"It will be the best of times and the worst times," McBride says. "We very much have a K-shaped consumer recovery. Fortunes of some households are better than they've ever been and improving further, while for millions of other households it's gone from bad to worse. And, unfortunately, we're likely to see reminders of both of those realities throughout 2021."

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