By Andrew Keshner
If the goal of the second round of stimulus checks was to stimulate spending, new research suggests the checks are only getting that job done in certain U.S. households.
The federal government’s $600 direct checks are spurring spending for lower-income families, but richer households are tucking the money away, according to researchers looking at aggregated debit and credit card data following the release of economic impact payments in late December as part of a $900 billion COVID-19 relief bill.
Though spending rose 7.9% from Jan. 6 to Jan. 19, 2021 compared to the same period a year previous for households making under $46,000, it edged up 0.2% for households making over $78,000, according to researchers at Opportunity Insights, an organization of Harvard and Brown University researchers using big data to explore economic mobility challenges.
Compared to their first stimulus check, richer households have spent less of their second stimulus check, the researchers added. They estimated that households with incomes above $78,000 will spend $45 of the $600 payments they received.
The April 2020 stimulus payments had a much bigger effect on those higher-income households’ spending, in part because it arrived at a time when unemployment was surging, they said. “Since then these households have largely returned to work, and have even accrued additional savings,” the researchers said.
As lawmakers debate the price and contours of another COVID-19 relief bill, the recent findings might bolster arguments for a more tailored approach.
President Joe Biden wants the third batch of stimulus checks to be $1,400 in a rescue package costing $1.9 trillion. He wants the same income thresholds for full payment: $75,000 for an individual and $150,000 for a married couple.
Some Republican Senators are balking at the price tag, and Biden was slated to meet with them on Monday afternoon. Their $618 billion plan counters with a $1,000 check for people making up to $40,000 and couples making up to $80,000, according to the Associated Press.
“Targeting the next round of stimulus payments toward lower-income households would save substantial resources that could be used to support other programs, with minimal impact on economic activity,” the researchers wrote, projecting that households above $78,000 would spend $105 of a third, $1,400 stimulus check.
Lawmakers should keep the findings in mind as stimulus talks continue, said John Friedman, a Brown University professor and a founding co-director for Opportunity Insights. “Even within this recession, we’re seeing things change in different ways for different types of households,” he said.
It’s tough to know what richer households are using their second stimulus check for, because they’re not really spending it, said Friedman, a co-author of the paper.
The findings echo research from the spring that also showed richer households saved more of their first check — an understandable outcome when 40% of people making under $40,000 lost their jobs from February to March but still had to pay for necessities.
In that research, Columbia University economists said people making under $1,000 a month were two times more likely to spend their check than people making $5,000.
Different contexts for the first and second stimulus checks
Within a month of getting their second economic impact payment, a person making less than $46,000 will spend an estimated $126, researchers said. That’s 21% of the money and roughly on par with the percentage they spent in the spring. When receiving their $1,200 check in early spring, that same household spent an estimated $280, which is 23.3% of the sum.
By contrast, a household with at least $78,000 used a projected $45 of the second check in January, 7.5% of the sum. Back in the spring, the same household spent a projected $348 within a month, approximately 29% of the sum.
Though the overall unemployment rate has improved, there are significant disparities in the labor market. Unemployment is likely above 20% for people in the bottom wage quartile and under 5% for people in the top wage quartile, Lael Brainard, a member of the Federal Reserve’s Board of Governors, said earlier this month.
“The K-shaped recovery remains highly uneven, with certain sectors and groups experiencing substantial hardship,” she said at the time .