For some marketers, tax refund season has historically meant more sales. The majority of Americans don’t use their refund for a spending spree, but feeling flush does affect purchasing behavior overall in the U.S., especially for households in the lower income brackets. Per MRI, 33% of Americans “hold off” on making big purchases until they get their tax refund.
Consumers expecting the biggest refunds tend to file as soon as possible and receive their refunds at the end of February into March. For more than half of Americans, this cash windfall goes into savings or paying down debt. Expanded Child Tax Credit and Federal Stimulus payments ended last year, so consumers may feel more inclined to squirrel their latest check away.
Consumers say they are less likely to splurge this year
A recent survey from the NRF showed 10% of consumers claimed they spent their return on a major purchase last year, while 9% of people spent it on a “splurge” purchase. When asked what they plan to spend their refund on this year, both purchase categories declined slightly. The one discretionary category consumers are planning on spending more on is travel, with 11% of consumers stating they will spend their refund check on a vacation in 2022.
Tax refunds are bigger this year to date. The IRS reports it has already issued almost 38 million refunds at an average of $3,401 each. Comparing year-over-year from March 4 5b data, that’s a 13.7% increase in the size of refund at this time. Increased child and education tax benefits along with recovery rebate and earned income credit expansion means parents and younger Americans are seeing larger refunds hit their accounts.
The everyday is getting more expensive
With inflation at a 40-year high, consumers will need that cash. Gasoline prices were up 38% annually as of the end of February, driven 6.6% higher from the previous month partly due to the Ukraine crisis. Prices for a gallon of gas have surpassed $4 per gallon for the first time since 2008. When gas prices go up, consumers drive less, but some car travel is essential to people’s everyday lives, and the increased costs eat into their spending power.
The NRF estimates that 29% of Americans spent their refund last year on everyday expenses. Everyday expenses might use up more of that windfall now that the everyday is getting more expensive. It’s more likely this year that tax refund cash will go straight to the pump instead of new products or services.
Don’t count on a spike in spending
Marketers who saw a bump last March may have to adjust their expectations accordingly. Certain pockets of population are seeing their discretionary budgets shrink, while others have changed their relationship with cash and savings. Unless you manage a travel brand, tax refunds may not affect your forecasts this year.