How consumers plan to receive—and spend—coronavirus stimulus checks

As millions of U.S. consumers are beginning to see stimulus checks electronically deposited into their bank accounts as part of the CARES Act, many companies are wondering how Americans will spend these funds.

Already, prepaid card provider Netspend (a subsidiary of Global Payments) has reported that it’s had almost $1 billion deposited onto its cards between Friday, April 12 and Tuesday, April 14. Netspend reported consumers buying groceries, gas, fast food and also withdrawing cash at ATMs.

Despite the uptick in consumer spending, there is a growing sentiment that additional stimulus funds may need to be allocated, given that the coronavirus has infected more than 600,000 in the U.S. and over 2 million globally, according to the Johns Hopkins University Coronavirus Resource Center.

When asked how consumers are planning to spend their stimulus funds, the top two responses were paying for groceries and paying bills. While the stimulus money is an unexpected windfall for many, it’s clear that buying luxury goods are not topping the planned spend categories. Based on data from a survey of 1,038 U.S. adults by Magnify Money, a unit of LendingTree, conducted on March 26-27, 2020 and released in April, rent is the third leading spend category earmarked for stimulus spending.

“These are certainly unusual, stressful times. These stimulus checks are going to be significant for many consumers. I wasn’t surprised to see that Americans are going to spend on basic everyday necessities," said Matt Schulz, chief credit analyst for LendingTree. "Some folks are going to use this money to keep food on the table, keep the lights on or keep a roof over their heads. This isn’t going to be fun money that people are planning to use to splurge. It’s about everyday life expenses."

Over one quarter (26%) reported that they planned to keep some of the money in savings — an important position, given the uncertainty looming over consumers and the economy.
Approximately $300 billion of the $2 trillion in CARES Act funds is being sent to consumers in the form of direct payments, yet some believe it may not be enough. According to a CARES Act breakdown by the Visual Capitalist, another $260 billion will be given to consumers in the form of enhanced unemployment benefits, and $43.7 billion in student loan aid.

When consumers were asked by Magnify Money in its coronavirus consumer survey, about 40% felt that the size of the stimulus checks were too small. Another 40% felt that they were just right, but that sentiment could easily change as much of the country remains in lockdown. An additional 16.7% responded that they didn’t know, which is potentially indicative of consumers waiting to see how far they can stretch the money.

The stimulus is being targeted at low to middle income consumers, with singles filing tax returns of $75,000 or less expected to receive $1,200 and joint filers earning less than $150,000 expected to receive $2,400. An incremental $500 per child under 17 will also be included in any stimulus money.

“Most people aren’t going to turn away free money," Schulz said. "It’s hard to know how much cash people will need. The fact that the largest group feels it’s about right is an indication that this check size may be adequate. Unfortunately, for the 17.5 million Americans who have filed for unemployment in the last three weeks, there is a great deal of financial uncertainty — which is why we have so many reporting that they don’t know if the check is adequate."
Given consumers’ wariness about the economy and their own jobs, many are considering alternatives to generate supplemental or replacement income, should the economic stimulus not be enough to jumpstart their personal lives and the economy.

According to a survey of U.S. adults by retirement planning website SimplyWise, almost a third (30%) of consumers plan to get part-time work. Borrowing as a cumulative choice is the top answer when considering that 16% will borrow from family or friends, 14% will make an early withdrawal from their retirement accounts such as a 401(k), and about 10% will consider getting a bank loan.

Only 15% of consumers reported that they would sell assets such as a car to generate additional funds.

But the stimulus money may not be enough, even coupled with enhanced unemployment as more than 6.6 million Americans filed for unemployment in the week ending April 4, 2020, according to the Department of Labor. Further, CNBC reported that more than 22 million Americans have filed for unemployment in the first four weeks since President Trump declared a national crisis in mid-March.
When it comes to saving and paying down debt, there are big differences between generations, as Gen Z and millennials are much more inclined to save some or all of the stimulus.

About 39% of Gen Z and 30% of millennials plan to save some of the stimulus money compared to only 21% of baby boomers and 23% of Gen Xers. Based on data from a coronavirus consumer survey by Magnify Money, paying off student loans are only important to the younger generations who hold most of them.

While the CARES Act does provide for $43.7 billion in student loan assistance, according to the Visual Capitalist, it pales in comparison to the mountain of existing student loan debt. The Federal Reserve Bank of New York reported in its Q4 2019 release that total U.S. student loans amounted to $1.51 trillion and already 11.1% of aggregate student debt was 90 days delinquent or already in default — three months before the coronavirus pandemic.

“Millennials came of age during the recession followed by Gen Z, so they know what it means to live in hard times," said Schulz. "Additionally, Gen Z has the least margin for error given that many are just starting out their careers. The fact that these two generations plan to save some stimulus money at are higher level than older generations is actually very encouraging. They are focused on building that reserve and don’t need to be told to build one. If you ever needed proof that you need to have a rainy-day fund, we are living it right now.”
Trump and the federal government have prioritized sending funds to those who already have a direct deposit link with the IRS for electronic distribution. Consumers who don’t have a direct deposit are being encouraged to go to an IRS website to enter their bank account information. Mailed checks are reportedly expected to take weeks or months to reach consumers, which potentially could negate the effects of the stimulus.

About 60% of consumers already have a direct deposit link with the IRS and should be receiving their funds very quickly. Based on data from Magnify Money in its coronavirus consumer survey, another 32% of U.S. consumers are banked but do not have a direct deposit link with the government.

“This is one of those cases where it definitely pays to have done that direct deposit in the past. A lot of people take direct deposit for granted. This could stimulate people to sign up with the government and do electronic banking," Schulz said. "But there will always be people who typically do everything with paper, especially older consumers. It’s hard to say how long the current situation is going to last, but the longer it goes on the more likely that we will see additional stimulus money being released. And if that’s the case, you really need to sign up for direct deposit now to benefit.”