This upcoming tax filing season will be critical for many consumers financially hit by the recession. Many will use this year’s tax refunds and stimulus checks to catch up on essential bills, but how the remaining portions are spent could be an indicator of consumers’ opinions on the future of the economy.
With vaccines rolling out and a more reliable timeline emerging, Americans likely will feel more certain about the future, but it may not be enough to shift consumer confidence.
Analysts have noted the economic recovery has been K-shaped so far, with some consumers and industries trending upward, and others continuing to face economic crisis. Delays in financial aid have continued into the winter, with millions now forced to wait for their second stimulus until they receive their tax refund.
The amount of money pushed out to consumers this year is also significant, with possibly larger refunds, second stimulus payments for some, and a third stimulus payment likely to quickly follow. High levels of unemployment will likely drive higher and/or more refunds as many consumers dropped income brackets, lowering their taxable income. Also, millions of consumers were forced to claim their second stimulus payment as a credit on their return, pushing refunds up some hundreds of dollars.
Historically, some have spent tax refunds on major purchases or home improvements, but most have gone toward savings, debt, and everyday expenses. According to the, National Retail Federation, 50% of those who expected a refund last year put some of it towards savings, 34% said debt, 13% vacation, and 10% “splurge” purchases.
Given the personal savings rate for this past December is nearly double (13.7%) that of last year (per the Federal Reserve Bank of St. Louis), it can be expected more consumers will put their refund toward savings. Debt and everyday expenses will also likely increase, given many Americans are behind on essential bills and may use the payments for some financial breathing room at the grocery store.
According to a survey by Resonate in late December, 51% of Americans are still moderately to extremely worried about their household finances, about the same when compared to a survey issued in August 2020. In addition, 61% don’t believe life will return to “normal” until fall 2021 or later. Though certainty around a timeline has increased with the vaccine rollout, many consumers will likely remain skeptical of risking any further financial harm and hold onto any money they may have otherwise planned for more discretionary spend.
For marketers, if your business is more sensitive to these changes in sentiment, you’ll want to be careful where you allocate ad spend. It could be useful to hold onto some spend for when consumers feel safer spending. Keep an eye on key economic and survey data points, but, even more importantly, watch vaccine timelines in your key states/county types. Many believe a strong correlation exists between vaccine distribution and spend levels returning to normal for a large percentage of consumers.