The Vast Majority Of Financially Insecure Americans Are Using Their Tax Refunds To Pay Off Bills

What will you do with your tax refund? We hope you have something fun in mind, but a new survey suggests that you might use it to pay bills instead.

The Center for Financial Services Innovation (CFSI) recently released baseline survey results for their U.S. Financial Health Pulse, a study designed to assess and track the overall financial health of America's households. The study assesses the spending, saving, borrowing, and planning habits of Americans, dividing us into three categories.

Most Americans, 55 percent, are "financially coping." They struggle with some financial issues but are doing well in others. Another 28 percent are "financially healthy," following a financial strategy that makes them resilient and able to handle financial setbacks.

The remaining 17 percent are "financially vulnerable," struggling with almost every aspect of their finances. Within this group, 87 percent used their tax refunds to pay bills — suggesting their expenses regularly exceed income.

Spending data backs up this claim. According to the survey, 46 percent of the financially vulnerable spend about as much as they make every month, and another 40 percent spend either a little more or much more than their income. Only 14 percnet in this group aren't living paycheck to paycheck, and 2-in-5 are falling further behind each month.

Other survey indicators paint the same grim picture for the financially vulnerable. Three-quarters are not confident they have sufficient long-term savings, and almost half only have enough savings to get by for less than a week.

It's not just the financially vulnerable who apply tax refunds to bills. In the financially coping group, 59 percent paid bills with tax refunds, as did 39 percent of the financially healthy group.

What were the other popular uses for tax refunds? Among the financially vulnerable, the focus was on necessary items. Over half applied tax refunds to household/personal items. Both vehicle expenses and paying down debt were cited by 38 percent, and 22 percent applied refunds to medical expenses.

Financially coping Americans gave similar responses. Even the financially healthy applied refunds to debt reduction a large percentage of the time.

Tax refunds are fun to receive, regardless of how you use them – but remember that when you have a tax refund, you paid too much money to the government throughout the year. Why not adjust your withholding so your taxes come out even at the end of the year, especially if you're financially vulnerable? You won't get a refund, but you'll have more money throughout the year to pay those nagging monthly bills – and probably reduce your overall stress.

It's better to use your tax refund to pay bills than it is to blow your tax refund on frivolous purchases and ignore your bills. It's better still to adjust your budget so your regular income can handle the monthly bills and your tax refund can be used to pay down debts or to build your emergency savings fund. This may require painful spending cuts or a second job to raise income, but a monthly surplus is necessary to achieve financial stability.

If you're living on the financial edge, make 2019 the year you move from the financially vulnerable group to the financially healthy group as your end goal.

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