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How did Americans use their coronavirus stimulus cheques?

According to a new study, less than half of the money was spent; a third was saved for a rainy day

OF THE DOZENS of provisions tucked into America’s CARES Act, the $2.2trn fiscal-stimulus package passed in March, none was as popular as the one-off payments to households. Taxpayers earning less than $99,000 a year ($198,000 for couples) were sent cheques worth up to $1,200, with an additional $500 for each child. In total, the Internal Revenue Service made 159m payments worth $265bn. The hope was that consumers would spend the windfall and pep up the economy, which shrank by 9.5% in the second quarter.

But a new working paper by three economists—Olivier Coibion, Yuriy Gorodnichenko and Michael Weber—suggests that Americans did not use the payments quite as Uncle Sam had hoped. Using data from a recent survey of 12,000 Americans conducted by Nielsen, a market-research firm, the authors found that just 42% of the money was spent. Another 27% was saved. The remaining 31% was used to repay debts.

These results may seem disappointing, given that the primary aim of the stimulus was to boost consumption. But they conceal wide variation across households. The authors found that 30% of Americans spent their entire stimulus cheque, while 40% did not spend any at all. As you might expect, poorer households spent more of their payments, with the bulk going on food and other essentials (see chart); bigger households spent more, too. More surprisingly, people who were short of cash—those who said they would be unable to spend a month’s income to cover an unexpected bill—were no more likely to spend their stimulus money than their more liquid counterparts. The authors point out that macroeconomic models typically assume that giving money to such individuals leads to higher levels of consumption.

As Congress debates a second stimulus package, politicians on both sides can find something in the study to support their point of view. Republicans want any subsequent support to be smaller and more targeted; Democrats are keen to spend more. Republicans warn that generous payments are a disincentive to work; Democrats disagree. The researchers found that those who received larger payments tended to spend less of the extra money (which might lend support to tighter targeting). But they also found scant evidence that the first round of stimulus had discouraged work. Among those with jobs, the payments did not influence working hours one way or the other. Among those without, 4% said they put less effort into looking for employment, but 21% said the payment encouraged them to search harder.

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