Making the most out of your Economic Impact Payment

Tips from a U.S. Bank expert on how to put your Economic Impact Payment (EIP) to good use in the current economy.

Tags: COVID-19, Unemployment, Economy
Published: April 22, 2020

By now, you probably received or will soon receive your Economic Impact Payment, or EIP (commonly referred to as the “stimulus check”). With so much financial uncertainty surrounding COVID-19, it’s natural if your initial reaction is to tuck the check away into your savings account for safekeeping. We asked Robert Schell, U.S. Bank financial industry and regulatory affairs expert, about recommended ways to use your EIP.

His initial advice? “Once you get the check, the money's yours, you can do whatever you want,” says Schell. “I always encourage people to do whatever makes them happy.”

Spending versus saving your stimulus money

According to Schell, there is no right or wrong way to spend or save your Economic Impact Payment, as it varies on individual or family circumstances. However, it is important to understand the purpose of why the Treasury Department and the Internal Revenue Service (IRS) are distributing these payments and when they’re meant to be used.

“The time for the stimulus is the whole period the economy is being challenged by forced shutdowns and social distancing,” Schell says. “Putting your money in the reserve to cover rainy days is reasonably expected in the near-term but this money is not meant for a long-term, nest-egg kind of savings. Save it for a rainy day, as long as you think that rainy day is coming within this challenging economic horizon.”

Some people will use this money for rent, groceries and other living expenses because they’ve lost work or income. Other people who haven't had a loss of income from this event could take advantage of the extra funds and splurge a bit. That concept can seem odd, especially during such a challenging time, however that spending is intended to stimulate the economy.

“That spending you're doing is someone else's income and helps in putting a roof over their head and so on. Those transactions create a long chain of economic relationships,” explains Schell.

Where to spend your stimulus money

Due to limits imposed by shutdowns and social distancing, it can be a challenge to support businesses when so many are closed right now. Schell suggests spending what you can where you’re able. Getting takeout from your favorite neighborhood places is a great way to support small businesses. A lot of large retailers and local stores are in the midst of managing inventories and have great deals as a result. If DIY projects have been your saving grace during quarantine, hardware stores also appreciate your business right now.

Schell says even donating to local nonprofits that are helping to support the community is another way to keep the money circulating through the system. Your spending is someone else’s income, so keeping the cycle going as long and as frequently as possible is key.

Schell adds that the longer we make these transactions, the more it multiplies. “If you get $1,000-2,000 from the stimulus and you spend it all, everyone who got that income from your spending is spending from that money as well,” he says. “And whoever they spent it with is going out and spending it, so we want to keep these transactions as frequent as possible. If that $1,000 was spent 100 times over the next two months, that's a really good sign for the economy.”

How to save your stimulus money

For others, spending their paycheck may not be the right option for them, whether their incomes have been challenged or they prefer a more risk-averse route. During a time of uncertainty, you might feel stressed out about the bills or debt you need to pay. If that’s the case, how can you still help the economy if you’re not spending money?

Schell says saving the money to allocate towards rent, bills, groceries and other life expenses is the best way. “The number one goal of the stimulus checks is for those people that are hurting,” he says. “Using that money to cover their basic needs is still helping to stimulate the economy.”

Making sure those expected transactions (like paying rent, for example) stay intact is important for the economy. “The people that you owe money to for your living expenses, that's their income as well and so it's a chain,” he adds. “You start to have cascading effects of more people who aren't able to afford their bills, the next line down the chain, that's when you put this sharp recovery that we're hoping for at risk.”

Debt on the other hand? Schell suggests leaving it put momentarily, unless it’s unmanageable, because it ultimately reduces the amount of money circulating throughout the economy. “As long as your debt burdens are manageable, spend it rather than paying down debt. We want people to have more debt in an environment like this, so we're getting as much spending today as we can.”

Doing what’s best for you

At the end of the day, there’s no right or wrong way to spend or save your stimulus check. It’s about knowing what’s best for you. Whether you need to save it for bills and necessary life expenses, or decide to treat yourself to a fun purchase, both are aiding the economy. Schell likens it to American economist Milton Friedman’s analogy that the government can employ more people and stimulate the economy by having people dig a canal with “spoons instead of shovels”.

“Right now, we want to have an economy built with spoons,” he says. “We want to have lots of transactions because we want to have long chains of economic relationships and spending build-up for the short term.”

Navigate your financial well-being throughout the COVID-19 situation here.