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Study finds most Americans put their pandemic checks in the bank


What did most Americans do with the first round of financial stimulus they received from the government in the early days of COVID-19? They put it in the bank and kept it there, new research from MIT shows.

In April 2020, around $300 billion in one-time economic impact payments ($1,200 per adult and $500 per child) were sent out to 162 million Americans, yet research shows few people spent the money when they got it.

While the program was designed to fill holes in the social safety net, rather than encourage consumers to head out into the world and spend, the lack of spending is consistent with one of the main criticisms of the program: many checks went to those who were not financially impacted by COVID-19, such as retirees.

“The pandemic hit people incredibly unequally,” saida professor of finance at MIT Sloan and co-author of the research. “There were people who really needed the money and ended up spending pretty quickly when they got it, but they were not the majority, they were the minority,” he said.

“That partly reflects the broad way in which the payments were distributed,” Parker said, noting that the program was “hardly targeted at all.” Its primary focus was to send out payments rapidly and broadly across all groups, even to those who were better off financially.   

“For some people, the financial losses were minimal or even the reverse — these payments were just bonus cash, and so in some sense, there was no pressure to spend it in any short order,” he said.

Then and now


In 2020, households with less than $3,000 available spent 20% to 30% of their U.S. government payment within three months of its arrival.

The government distributed similar payments to Americans in 2001 and 2008 to help with initially mild recessions that were caused by a decline in the stock market and a slowdown in the housing sector, respectively, Parker said. Back then, the hope was that people would go out and spend, but the circumstances at the start of the pandemic were different.

In April 2020, “We didn't want people going out and spending lots of money, going out to restaurants and so on,” Parker said. “We wanted to close down the economy, put it in the freezer, and wake it up when COVID-19 was over.”

And yet, Parker was still surprised at the extent to which people held onto their payments. Americans spent just 10% percent of their checks on non-durable goods and services in the first three months of arrival, “substantially” lower than what was seen in 2001 and 2008. “I thought there might be a much higher spending response than there was,” he said.

Who spent more, and why

Parker and his co-researchers based their study on data from the Consumer Expenditure Interview Survey. Run by the Bureau of Labor Statistics, the household survey collects information on consumers’ spending habits as well as financial and demographic information.

The authors compared responses from the 2020 survey with datasets that were used in previous research relating to the 2001 and 2008 payments.

Researchers were able to compare differences in how people spent, based on their financial situation.

In 2020, households with less than $3,000 available (defined as the total sum of funds in a checking account, savings account, money market account, and certificate of deposit), spent 20% to 30% of their payment within three months of its arrival. Those within this group that received their payment on a debit card — people who didn’t have their banking information on file with the IRS — spent 36.8% of their funds within three months of its arrival.

Parker noted that households that received their payment by direct deposit typically had higher incomes, higher liquidity, and larger economic impact payments than households that received the payments by mail. By comparison, the top third of the income distribution spent just 3% of their payment on average.

Inefficient distribution of funds

Without knowing someone’s full financial situation, it becomes harder to allocate payments correctly. The less information the government has, the greater the chance that payments will be made to those who don’t need assistance, such as retirees who didn’t have jobs to lose and continued to receive Social Security.

“For them, the health risks were tantamount, but it wasn't a financial loss that they suffered,” Parker said.

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Parker said that the next time around, it would be a step in the right direction to make sure that funds are sent to people based on their income threshold and some measure of likely losses.

This targeted approach would also be useful to other government programs. Parker cited the child tax credit — which remains in limbo — as an example of how funds have been sent to recipients even though they clearly land above the income threshold and don’t need the money. Improving targeting before the next crisis would be very useful, he said.

Household Spending Responses to the Economic Impact Payments of 2020: Evidence from the Consumer Expenditure Survey" is co-authored by Parker, economists Jake Schild and Laura Erhard, both of the Bureau of Labor Statistics, as well as David S. Johnson of the University of Michigan’s Institute for Social Research.

Read next: Here’s how much the 2008 bailouts really cost

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