How Americans used their COVID‐19 economic impact payments

Abstract

This study investigates how Americans used their CARES Act Economic Impact Payments (EIP) for their spending needs, spending wants, and financial transactions. The results from a sample of 1,172 Amazon MTurk users collected in July 2020 suggest that EIP use varied across spending and financial transaction categories. Those with job instability, less financial resources, and more people to care for received essential support. A smaller proportion of the population spent at least some of their EIP on their wants. Americans' primarily focused their EIP spending on housing, food, and hobbies. In addition, people were able to improve their financial situation through investing and debt reduction. Decisions to save the EIP were related to economic recovery concerns; a broad policy package and public messaging strategy that offers assurance of economic recovery and stability might enhance policy effectiveness for boosting immediate economic growth through EIP spending. K E Y W O R D S behavioral life cycle hypothesis, CARES Act, COVID-19, economic impact payments, marginal propensity to consume, spending 1 | INTRODUCTION The COVID-19 pandemic has had an unprecedented impact on U.S. society, the economy, and consumer spending. The pandemic has resulted in historically high unemployment rates (U.S. Bureau of Labor Statistics, 2020), with more than 51 million workers filing for unemployment benefits for the first time (Department of Labor, 2020). To alleviate the economic effects of COVID-19 and to stimulate the economy, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). One of the major components of the CARES Act consisted of direct payments to individuals, called Economic Impact Payments (EIPs), to provide immediate relief and to stimulate consumer spending (U.S. Department of the Treasury, 2020). The CARES Act offered people a financial safety net and a choice about how to allocate their EIPs across their spending needs and wants, and their financial situation (such as saving and debt reduction). Given the extensive cost of the CARES Act and the decision-making opportunity for EIP use placed before Americans, the purpose of this study is twofold: to investigate how Americans chose to use their EIPs, and to determine the behavioral, economic, and demographic factors associated with those decisions. Additionally, this study aims to discern how individuals allocated their EIPs within major subcategories, such as saving, investing, housing, transportation, travel, education, hobbies, and charitable donations. It is important for policymakers to determine how people tend to use stimulus payments, like the CARES Act EIPs, and the factors associated with their decision-making to inform future legislation aimed at supporting Americans' financial and overall well-being. Beyond public policy implications, more information about how people use their EIPs

The Psychology of COVID-19 Economic Impact Payment Use

“…Therefore, it is critical to account for fundamental differences in sociodemographic and economic conditions when investigating stimulus payment use. Researchers have conducted emerging research to investigate how individuals spent their 2020 CARES Act EIP (Asebedo et al, 2020 ; Baker et al, 2020 ; Chetty et al, 2020 ; Coibion et al, 2020 ; Li et al, 2020 ). Specifically, Asebedo et al ( 2020 ) found that those with a lesser net worth (compared to high net worth) allocated less of their EIP to financial transactions, more of their EIP to debt repayment in addition to spending needs and wants.…”

“…Researchers have conducted emerging research to investigate how individuals spent their 2020 CARES Act EIP (Asebedo et al, 2020 ; Baker et al, 2020 ; Chetty et al, 2020 ; Coibion et al, 2020 ; Li et al, 2020 ). Specifically, Asebedo et al ( 2020 ) found that those with a lesser net worth (compared to high net worth) allocated less of their EIP to financial transactions, more of their EIP to debt repayment in addition to spending needs and wants. Asebedo et al’s findings are consistent with studies that found lower-income households facing liquidity constraints were more likely to spend their EIP, as well as other recent research about EIP spending among low-income households (Baker et al, 2020 ; Chetty et al, 2020 ; Coibion et al, 2020 ).…”

“…Asebedo et al’s findings are consistent with studies that found lower-income households facing liquidity constraints were more likely to spend their EIP, as well as other recent research about EIP spending among low-income households (Baker et al, 2020 ; Chetty et al, 2020 ; Coibion et al, 2020 ). However, Coibion et al ( 2020 ) did not incorporate spending categories, while Asebedo et al ( 2020 ) found that those with low to moderate wealth levels (compared to higher wealth) used more of their EIP for transportation and clothing.…”

“…Last, older individuals were more likely to spend and less likely to save their EIP (Coibion et al, 2020 ). Regarding specific categories, older individuals allocated less of their EIP on housing, clothing, travel, hobby and recreation, and education, while they spent more on donations, health care, and transportation (Asebedo et al, 2020 ).…”

“…Given the abrupt personal, family, and economic shock delivered by COVID-19 and swift governmental response with initial financial support in Spring 2020 under the CARES Act, people likely did not have an opportunity to plan for impending financial disruption. Therefore, people likely perceived the stimulus payment as an unexpected windfall (Asebedo et al, 2020 ; Shefrin & Thaler, 1988 ) that evoked behavior reflecting their level of financial preparedness and sense of control and resilience over their financial situation both before and during the crisis.…”