Thanks to the unprecedented federal stimulus package in response to the coronavirus outbreak, most American workers will receive a check of up to $1,200 per person to deal with the economic impact from the pandemic.
Of course, how to spend that money will largely depend on individual circumstances, and those whose income isn’t yet affected by the economy shutdown may even see the government check as a quarantine bonus. However, professional financial planners caution that, even if the money doesn’t seem urgently important now, the best way to use it is to put it in a savings account.
“The first rule of thumb is to use your stimulus money for essential living expenses if you need it, and then the second is to save, save, save,” Lola Danza, a vice president and financial consultant at Charles Schwab, one of the largest wealth management firms in the U.S., told Observer.
“For those who are able to keep up with their bills and have a financial cushion, we recommend that you still add to your savings, e.g. save half and donate half to support your community through nonprofits or buying locally,” she added.
For essential spendings, Danza stressed the importance of insurance. “Insurance is frequently overlooked as an essential expense,” she said. “When you have insurance and don’t need it, you might wonder why you are paying for it. However, when you need insurance and you don’t have it, you’ll wish you had it very badly—so make sure you have it.”
Of the $2.25 trillion federal stimulus package, about $250 billion is allocated for distributing cash to American workers. While the payment will help many financially struggling families pay a few bills, not everyone thinks it’s a good idea. Gary Cohn, head of the National Economic Council under the Trump administration, for example, called the cash giveaway the “worst feature” of the rescue plan.
“There will be a time to stimulate the economy and get you to spend money. But this is not the time,” Cohn said during the last episode of the Freakonomics Radio aired on Thursday.
“I think that writing checks to individuals is perhaps less effective than people think,” Glenn Hubbard, former dean of Columbia Business School and President George W. Bush’s chief economic advisor, said on the same radio show.
“First of all, if you’re keeping people attached to work and wages, they don’t need it. Second, it’s not very quick,” he explained. “I remember from the 2001 experience [post 9/11], it took us a little while to get checks out, even though President Bush got his legislation passed very quickly. I think it’s going to take longer than Treasury thinks.”