What Happens When Stimulus Money Runs Out?

A savings surge caused by the Covid-19 pandemic is reportedly turning into a slump. 

Median household checking account balances have fallen since the last stimulus payments that went out in the spring of 2021, according to Moody’s Analytics. 

Over the last few months, as Covid-19 vaccines have rolled out, people have started returning to work and to “normal” life, which also translates to increased spending. In the third quarter of 2021, consumer spending rose at an annualized rate of 1.7%. But that uptick has been accompanied by record high inflation, which has increased the cost of goods and services, including gas, groceries, and rent.

Inflation is typically measured by the Consumer Price Index (CPI), which shows the percentage change in prices paid by urban consumers on goods and services. The CPI is produced by the Department of Labor’s Bureau of Labor Statistics (BLS). As of November 2021, the inflation gauged by the CPI stands at 6.8%.

While low-income households saw their balances increase the most from the influx of cash from stimulus payments and advanced child tax credit payments, these households also reportedly spent that extra money the most quickly. Checking balances for this demographic have increased, but not by much, despite stimulus payments. For example, the median checking balance for people earning less than $30,296 annually was $961 for the week ending September 25, 2021, according to research from JPMorgan Chase and the New York Times, about $393 more than the same week in 2019.

Median checking balances among low-income households for September 25, 2021:

Source: New York Times and JPMorgan Chase

A steep turnaround in savings

As of October 2021, the personal savings rate has fallen to about 7%. That marks a dramatic change from the height of the pandemic last spring, when many people were staying home and receiving stimulus payments from the government. Consumers saved a record 34% of their disposable incomes as of April, 2020, up from 8% in February, 2020. The savings rate remained higher than usual throughout the first year of the pandemic, spiking to 27% again in March 2021. 

Make a plan for sensible spending

The holidays are coming up, and that can make it more difficult to save money when there is pressure to buy gifts for loved ones, and spend money on travel. Be extra careful not to spend beyond your means this holiday season, and try not to dip into your savings. And while you might use your credit card to purchase gifts, don’t rely too heavily on credit. You don’t want to end up with low savings, and debt to pay down.

If you’re struggling to get your savings back on track, Stash has some additional tips: 

Establish savings goals

It might be helpful to set goals when you’re saving. If you want to buy a car, purchase a home, or establish college savings for your kids, remember that each time you put money into savings. You can create Goals within your Stash account, and move money into that Goal each time you save.¹ 

Set up an automatic transfer

You might want to set up an automatic transfer into your savings account (or your Goal)¹ each time you get paid. Setting aside a little money from each paycheck can help you keep that money out of sight and out of mind. Remember that you want to have a rainy day fund with $500 to $1,000 for unexpected expenses, and an emergency fund with three to six months of expenses in case you suffer a larger set back, such as a job layoff. Once you have those savings established, you can invest in a brokerage account or for long-term goals. 

As always, remember to budget

You may already have a budget. If you don’t, creating one can help you get your financial life in order. Making room for savings in your budget can help you prioritize setting aside money for emergencies and long-term goals. 

If you already use a budget, but are struggling to save, take another look at your budget and see where you’ve been missing the mark. Maybe you’ve been dipping into your stimulus savings because your rent increased and you need to adjust, or maybe you’ve been spending more on going out to dinner than you meant to. You might need to shift the structure of your budget to reflect your needs.