How to Best Spend Your Stimulus Money
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What is the main topic discussed in this episode?
Here's your Money Briefing for Wednesday, April 1st. I'm J.R. Whelan for The Wall Street Journal. Today we continue our week-long look at the government's coronavirus stimulus package, $2 trillion in you. Direct payments from the government are perhaps the most well-known piece of the relief plan. They're scheduled to arrive sometime this month.
What is the stimulus payment and who will receive the $1,200 checks?
And for Americans who've lost their job or whose work hours have been cut, they come not a moment too soon. But Wall Street Journal personal finance editor Beret Lam recommends that you first make a plan for how you're going to spend it.
It's April 1st, and who knows how long this will go on for. May 1st is also just around the corner where bills are due and rent is due. So even thinking of spending these on essential expenses, you want to see how far you can stretch it.
Coming up, she'll explain why it's important to keep the money in cash and why it's okay to spend some of it on yourself.
As part of the recent economic stimulus plan millions of Americans will be getting one time direct payments of $1,200 from the government later this month. So what are the smartest ways to spend some tax free money that you don't have to pay back Wall Street Journal personal finance editor beret lamb joins us with some tips.
Why shouldn't you treat the stimulus like a paycheck replacement?
So beret the stimulus payments are useful influx of cash, but the challenge they come with is that they don't replace a weekly paycheck.
I talked to Claudia Somm, who's the director of macroeconomic policy at the Washington Center of Equitable Growth. And one thing she says about this not being a paycheck replacement is that we're never ready for a recession. There's so many families within financial bumpers. They're not ready for a recession. And so this $1,200 payment is meant to tie them over for those who don't know whether they're going to lose their job. And if you're able to just use this money to keep you afloat, hopefully you don't lose your job. And if you do, it'll supplement your unemployment insurance payment if you are eligible for that.
Why is it wise to keep your stimulus money in cash or liquid accounts?
Now, oftentimes the wise thing to do with money is to save it. That's different this time.
How much of past stimulus payments did households spend quickly and what does that imply?
we tend to think about unexpected windfalls, right? So with tax refunds, that's one thing that personal finance, we usually talk about in terms of unexpected money coming in the door, like I've overpaid my taxes and now I'm getting a little bit back. What should I do with it? And most experts will say save it, like add that to your emergency fund or add it to your retirement fund or add it to some other kind of savings vehicle instead of spending it on like a vacation or something extra for yourself or divide the money, spend a little bit on the special thing you've been planning and hoping for, and then also save some of it. That's the conventional wisdom.
How can you use stimulus money to support local businesses and workers?
But right now, we're not in a time where that conventional wisdom is very helpful to most people. A lot of people are expecting their economic circumstance to change as the fallout from the coronavirus pandemic keeps hitting the economy. Some are expecting to get sick, possibly. Some are expecting maybe job loss. And so saving it in those times is probably not what's real for most people. They probably have to spend that money to keep their lives going.
Is it okay to spend stimulus money on services or people you usually pay?
why is it wise to keep the money in cash as the situation i was just describing if you are say your economic situation changes and you have to pay the rent you don't want to lock that money up somewhere where you can't access it what you want with your stimulus money if it's a way for you to stay afloat is that you're able to access it so you want it to be in liquid form as they say it you want to keep your liquidity so that you can use it when you need to use it One economist I talked to, Jonathan Parker, who is a finance professor at MIT, he studied the financial stimulus payments of 2001 and 2008. And what he found was that most households ended up spending 50 to 90% of their 2008 stimulus payments in the first three months.
meaning households needed this money to do what they had to do with it and so typically for these households you want to imagine that that's what they need is that they will spend it in the first three months so you don't want to lock it up in say stocks or you don't want to lock it up in your retirement account where you
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:24
2
What is the stimulus payment and who will receive the $1,200 checks?
0:24–1:25
3
Why shouldn't you treat the stimulus like a paycheck replacement?
1:25–2:10
4
Why is it wise to keep your stimulus money in cash or liquid accounts?
2:10–2:15
5
How much of past stimulus payments did households spend quickly and what does that imply?
2:15–2:53
6
How can you use stimulus money to support local businesses and workers?
2:53–3:23
7
Is it okay to spend stimulus money on services or people you usually pay?
3:23–7:36
Speakers
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