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As we wait for a second stimulus check, the case for ongoing payments grows more convincing

New research indicates that ongoing payments, such as unemployment insurance or universal income, may have more of the desired stimulus effect.

As we wait for a second stimulus check, the case for ongoing payments grows more convincing
[Photo: 金 运/Unsplash]

How are people spending their stimulus checks? An ongoing study from the Kellogg School of Management at Northwestern University finds that one factor predicts how people spend their stimulus checks: their bank account balance. Those with under $500 in their bank accounts spend nearly half of their stimulus check within 10 days, while those with more than $3,000 in their bank accounts do nothing. (Well, one assumes they smile, at least briefly?)

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How the current stimulus checks are being spent:

  • On necessities such as food, household items, bills, and rent. This is a big shift from prior recessions, when stimulus spending often went to big durable purchases, particularly cars.
  • On restaurant takeout and delivery orders, indicating splurges.

Notably, people who had recently lost their jobs did not spend it any faster, meaning that unemployment payments are likely covering necessities.

What the stimulus plan stimulates:

The researchers say that if the goal is to stimulate the economy—i.e, to send out money and have people spend it in the economy—then stimulus programs should target people with low bank account balances, who will spend it quickly. The findings also indicate that ongoing payments, such as unemployment insurance or universal income, may have more of the desired stimulus effect.

Meanwhile, a second stimulus payment from the IRS could come eventually, but it won’t happen anytime in the immediate future. The latest proposal, the HEROES Act, passed in the House but stalled in the Senate. Senate Majority Leader Mitch McConnell indicated a strong likelihood of a second package.

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