How Much Will the $1,400 Stimulus Check Help Financially Vulnerable Americans?

The lack of data-driven debate on the third stimulus package reflects the scarcity of data on household finances. So far, the focus has been on the impact of a stimulus package on consumer spending, but it’s not clear how President Joe Biden’s proposed $1,400 stimulus check for eligible households will affect the U.S. able to pay their bills.

Conventional economic data, such as gross domestic product and high-frequency consumer spending, both measure economic output. Aggregated personal savings data also do not provide insight into the distribution of savings over the population. While these data sources provide important insight into the likely impact of fiscal spending on the economy, they only tell part of the story.

To assess the impact, amount and appropriateness of a third stimulus package, Morning Consult analyzed its own tracking data on household finances, which provides insight into the current state of household balance sheets.

Based on this data, this analysis argues that a third round of $1,400 stimulus checks aimed more at adults and low-income parents, combined with improvements to the country’s unemployment benefit system, would prevent unnecessary financial hardship and mitigate future economic risks. .

$1,400 would help many Americans avoid financial trouble through July

The purpose of fiscal spending during a recession is not just to stimulate short-term economic activity; it is also to provide financially vulnerable households with enough money to avoid unnecessary financial damage. As a society, arrears and defaults are an inefficient and costly use of resources, and financial insecurity prevents families from investing in their future. During recessions, it is cheaper for the country as a whole to keep people out of financial trouble than it is to help them fight their way back.

Despite the second round of stimulus measures in January, the number of adults experiencing financial difficulties in January remained relatively the same as in December. In January, 16 percent of respondents said their expenses exceeded their income for the month, up from 15 percent in December. This financial distress has been concentrated in low-income households ($50,000 or less in annual income), underscoring how severe the wage losses have been concentrated in low-income adults during this recession.

Based on these survey results, about 30.2 million adults were unable to pay their bills in January.

Of these 30.2 million adults, 75 percent of them couldn’t pay their monthly bills with less than $300, an improvement of 7 percentage points from December. In other words, the stimulus controls haven’t drastically changed the number of people who can’t pay their bills, but it did get them closer to paying their bills.

A check for $1,400 would allow 22.6 million adults to pay their expenses for at least four and a half months without incurring additional debt or further eating into their depleted savings, assuming they have income from work and unemployment benefits. preserve. If the checks are mailed on March 1, these payments would allow 22.6 million Americans to pay their bills in full by mid-July.

The proposed stimulus plan provides noticeably less relief for the remaining 7.5 million adults who couldn’t pay their bills in January. For most of them, their January income lagged their expenses by more than $500. The cost of protecting them from financial hardship for four or five months would be high, and the economic benefits would be relatively small because they are such a small part of the population.

This group needs extra financial help, but stimulus checks are too blunt an instrument for them. The cost of sending significantly larger incentive checks to everyone far outweighs the benefits of helping relatively few additional Americans.

If the United States is able to successfully get widespread vaccinations by the end of June, economic activity should accelerate in July as it picks up consumer comfort drives up expenditure and employment, reducing the need for government support in the second half of the year. Although vaccine mutations and labor market scars pose serious risks baseline outlook, improvements in unemployment insurance offer the best approach to managing these risks, as detailed below.

Recommendation: Lower income thresholds and increase payments for children

Low-income households and parents were most desperate for their second stimulus checks and will likely need additional incentives in the future. According to a survey conducted in early February, Americans with an annual household income of less than $50,000 already spent about 67 percent of the money received.

Stimulus checks issued to households earning more than $100,000 a year and less than $174,000 a year were less necessary, even though there were two or more people living in those households. This shows that the income limits for householders and joint filing of adults used in the second package of measures against the coronavirus were too high.

Redirecting the money sent to higher-income households to lower-income households or helping small businesses would increase consumer spending and reduce more financial hardship. For example, if Congress lowered the cap to $100,000, 20 million Americans could pay their bills through July, down from 2.6 million adults. The money that the government saves by lowering the upper income limit for householders and married people could be funneled on to parents with children or other financially vulnerable groups.

Data on parents also shows how hard the pandemic is hitting them. Single parents spent an average of 70 percent of the money they received from the second stimulus check, while parents with two partners spent 65 percent of their checks, compared to 60 percent with non-parents. The third round of incentives should increase the additional money eligible parents receive per child.

Recommendation: Extend federal unemployment benefits through September and implement automatic stabilizers to prevent future benefit disruptions

The second coronavirus aid package included a federal unemployment boost of $300 per week for those receiving benefits. Due to limitations in states’ processing systems, about 1 in 3 unemployment insurance recipients have yet to receive the federal boost, according to Morning Consult’s research.

Congress should extend the unemployment insurance provisions included in the second coronavirus relief package until the end of September and adopt automatic stabilizers as a risk-mitigating strategy against ineffective vaccinations and long-term scars in the labor market. Congress exacerbated the economic downturn in November and December by adopting a wait-and-see attitude to expand expanded unemployment benefits. There is no good reason to have to learn this lesson a second time.

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