A second round of stimulus checks is on the way to Americans, and a majority of people say they'll use the money to cover expenses, pay down lingering debt, or save, according to a New York Federal Reserve poll.
Considering the economic hardship brought on by the coronavirus pandemic, it's not a huge surprise. Many people plan to use their $600 relief payment to get back on their feet financially or build a rainy-day fund in case of an emergency or unexpected expense.
That's largely how they used the first check, says Lou Abrams, CFP, founder of financial start-up Fisecal. Most of his clients put the money from the first wave of $1,200 checks, via the CARES Act, toward paying off "significant portions of credit card and student loan debt" rather than dipping into their savings, he says.
Almost half, 45%, of respondents would put the extra money toward savings, according to the Fed survey, which included 1,300 heads of households and was conducted in June and August of 2020. Another 31% would use it to pay debt like student loans and credit cards. And about 14% would spend the cash on food, housing, and other needs.
Those stats track with more recent findings, too: In a November Yahoo Finance-Harris Poll survey, 53% of respondents said they would use part of their stimulus to pay bills, 43% would use it to cover essentials, and 39% would put the money into a savings account.
With the amount of outstanding debt Americans are facing, $600 can seem like a drop in the bucket. It would barely cover a single month's rent in most of the country, and it's only about one-sixth of the typical cost of an emergency at $3,500, according to Bankrate data.
But while the check may be small, experts say it can have a big impact if you use it wisely. If you don't need the funds to cover an immediate expense, like a high interest credit card, consider starting an emergency fund or beefing up one you have.
Video by Helen Zhao
Money advisors generally recommended putting at least 3 to 6 months' worth of living expenses toward an emergency account. And the pandemic has shown aiming to save a year's worth can be a smart move, financial expert Suze Orman recently told Grow.
"The most important building block so that you can grow, financially, is that you have a financial foundation you can stand on," she says. "So when something goes wrong, it doesn't collapse."
Many Americans are falling behind on their bills and need the extra help these stimulus checks will provide. More than half, 54%, said they've missed at least one payment in 2020 versus 29% who were worried about missing a payment in January that year, according to the online platform Clever.
Nearly a quarter have had to dip into their savings to pay for expenses, and 31% have taken over $5,000 from their emergency funds.
Video by Stephen Parkhurst
Since the virus was declared a pandemic, in fact, up to 46 million U.S. adults have wiped out their emergency savings. And, as of November, the average American had fallen $7,512 deeper into debt, bringing total nonmortgage debt to a striking $41,559 for the typical person, Clever data shows.
There's a chance that President-elect Joe Biden could push out additional stimulus funding when he takes office. Still, a larger payout is far from certain.
Since you can't count on more funding from the government, try to put away this money if you can so you can use it later on in an emergency, experts suggest. Use the money to pay critical expenses if you need to. Otherwise, "saving it is the much better choice," Liz Weston, a certified financial planner and author of "The 10 Commandments of Money," told Grow last month. "We don't know how long the pandemic will continue or what will happen next to the economy. When in doubt, hoard cash."
More from Grow:
- The average American fell $7,500 deeper in debt while waiting on a second stimulus check
- The $900 billion Covid stimulus passed without extending student loan forbearance: Here's what borrowers need to know
- Second stimulus check calculator: Find out how much money you could get