Tax season is behind us – although about one in five of us will need to pay additional taxes. For those who did receive a tax refund, spending wasn’t on the top of their to-do list and that may tell us something about where the priorities of Americans are.
Morning Consult polled 2,200 Americans and found that three out of ten plan to pay down debt (31 percent) or build up their savings (24 percent). That’s much more than the aggregate of those who plan to spend their refunds on large purchases like televisions (3 percent) or small purchases such as clothing (9 percent). Only 8 percent say they using it for a future vacation and just a small percentage plan to spend the money on a down payment for house (2 percent) and car (4 percent) or to pay for a wedding (2 percent). Paying down student loans is also unpopular among tax refund recipients (just 3 percent).
Paying down debt is highest among Generation X with four in ten planning to use their refund for debt reduction as compared to a third of Baby Boomers and older Millennials.
Saving their refund is highest among Millennials, though at 28 percent only slightly higher than a quarter of those over 65 and Generation Xers.
Across all age groups large and small purchases are not high priorities among any of the age groups although at least one in ten Millennials and their Baby Boomers parents planned to purchase a small item.
Finally, upper middle class and wealthier Americans – those who made over $100,000 – were most likely to say they are stashing away their refunds. More than a third (37 percent) are saving their refunds compared to about a quarter of middle-income Americans (those earning $50k-100k) and one in five Americans earning less than $50k. Those middle-income Americans lead in paying down debt while a larger share of lower income Americans (12 percent) plan to spend their refunds purchasing small items.
Are we seeing a fundamental shift in the spending habits of Americans? It’s possible.
Gallup has identified an increasing trend toward saving over spending. In 2017, some 59 percent of Americans say they enjoy saving more than spending. While that edged down from 65 percent last year, it continues the upward trajectory from 2001 when just 48 percent of Americans expressed that sentiment.
At the same time, Americans who say they are spending less money in recent months also continues fall from their recession levels to just 36 percent this year from 57 percent in 2010. Those who say they are spending more has risen but not at the same pace. It seems that spending less is a new normal for American households.
Gallup discusses at the impacts on the economy:
One consequence is that Americans may respond strongly to value propositions in retail marketing — i.e., offers of discounts and sales. Although sometimes illusory, the idea that a marked price is below the "normal retail price" can help consumers satisfy themselves that they are watching their spending and attempting to save as much as possible…
A second consequence is the economic effect these attitudes can have. If Americans go too far in favoring saving over spending, it could hurt the nation's vital retail sector. A few years ago, Fortune magazine featured an article titled: "Are Americans saving too much of their money?" It concluded that "The American economy, which is powered by consumer spending, limps along while those with money to spend hoard it instead." The point is that while an attitudinal predisposition to saving could be personally positive, it could be negative for the economy as a whole. Along those lines, there are signs that consumer spending has slowed down recently, contributing to tepid economic growth in the first quarter of this year.
At the same time, other attitudinal measures show that Americans are feeling better about their personal finances these days, and a separate Gallup question shows that significantly fewer Americans say they are actively cutting back on how much money they spend each week compared with a few years ago. Thus, the narrowing edge for the group that favors saving rather than spending could reflect this increased optimism and perhaps augur a further shift in the years ahead. But at least so far, there has not been a wholesale reversal of the basic attitudinal predisposition toward saving in these data.
Gallup cautions against assuming a “wholesale reversal” of Americans’ attitudes about savings and spending, but if this trend continues, we will continue to see major impacts on our economy and growth.