Americans Spent Relief Money In Unexpected Ways During The Crisis

Many people in 2020 were on the receiving end of sweeping layoffs in response to the Covid-19 pandemic lockdowns. The pandemic was slowly bringing the entire planet to a standstill. It was as if the gas ran out in the tanks of every single car on a freeway, and people got out of their car, looking around and asking what had happened.

When the Covid-19 pandemic shut down economies around the world, U.S. lawmakers quickly realized this would have catastrophic effects on consumer spending. Since consumer spending accounts for about 70 percent of the US GDP, it’s no surprise that plans were drawn up almost immediately to help avoid the impending blow to US businesses.

Many Americans have received payments totaling $3,200 from the IRS in three separate checks, which doesn’t even account for additional money for each child or the federal unemployment benefits.  A family of four, for example, could have received $3,400 in the first payment, $2,400 in the second, and $5,600 in the third payment, assuming this family fell within the requirements to receive the maximum payment amount for the couple and two children.

This is a total of $11,400 over the last year.

While the intent was to give Americans enough money to keep paying their bills and perhaps buy a few consumer goods, the results were a bit different than originally intended.

An analysis from the Federal Reserve Bank of New York shows that the appetite for new loans and credit dropped off at the start of the pandemic as Americans – in fact, everyone – battened down the hatches and prepared to take on water, as the saying goes.  The one exception, of course, was mortgage re-financing. 

The analysis was done based on the results of the Survey of Consumer Expectations (SCE), and while it doesn’t necessarily show that Americans were spending their relief payments to pay down debt, it does show that applications for any new credit dropped 11 percent between February and October 2020. Only mortgage refinance applications rose in 2020 due to the lowest interest rates since the 2008 financial crisis.

Now to understand where the relief money was going.

To understand this, the U.S. Census Bureau conducted a survey in July 2020 which showed that most households were spending the first round of payments on regular expenses (i.e. consumer spending).  However, further surveys on the next two relief payments showed that Americans changed course drastically, opting instead to use them to pay off debts. The results showed 11 percent used the first payment for paying off debt while this number jumped to 51 percent for the second payment in December 2020 and 49 percent for the most recent payment in March 2021.

These studies simply show how American spending was directed, though the drastic shifts are generally understood to stem primarily from the pandemic’s psychological effect on spending habits as well as the U.S. Government’s response via relief payments and extended unemployment benefits that injected unexpected money into Americans’ pockets. 

The intention of the payments was to help Americans keep the lights on and put food on the table during extended periods of unemployment.  However, the results of several studies show that the payments may have simply helped Americans pay off debts, perhaps giving way to a better future for average families.