The first three rounds of the federal stimulus checks came in vastly different circumstances. When the lockdown was declared initially after the pandemic crossed into the US, people found their life suddenly jolted and were thrust into a period of economic darkness.
Million lost their jobs and were facing imminent poverty. They risked being thrown out of their homes or having their homes seized by banks and financial institutions. Households who had debts, including high-interest ones such as credit card debts, were in danger of defaulting and being blacklisted by these financial institutions. They also faced the daunting prospect of having their utilities shut off.
Around 75% of households in America were in such dire straits financially that they spent the cash as soon as they received it on immediate requirements. For most households, the amount they received went immediately to put food on the table, pay off their debts and rent, and make emergency provisions for the months ahead.
By the time the second round of payments came around, people had stabilized their finances to some extent. They were to some extent free of their debts but the debilitating economic situation continued to assail them and people opted to save rather than invest or spend on non-essentials.
But the situation was to change by the time the third round of the stimulus check, the economic impact payment, came along. The third payment from the federal government was part of the American Rescue Plan Act signed by President Biden in March 2021, immediately after he came to power in January 2021.
The second and third stimulus checks came back-to-back and effectively gave a combined sum of $2,000 per head. People suddenly had a lot of money in their hands, way more than most households had even earned or saved at one time.
With the successive stimulus check payments in hand, a third of households who received the payments were stable enough to set aside most of their final payments. Even more, people were able to save a substantial part of their stimulus checks.
Many sectors had started to open up and people were returning to their jobs. Many households had close to $10,000 in their hands even after paying off their debts. And how they choose to spend it made a lot of difference to the economy. While a substantial percentage of households decided to set aside the money anticipating tougher times ahead, another section of people decide to splurge it on non-essential products.
One of the reasons for the immediate recovery of the economy despite the deep economic downturn was the direct injection of money into the economy. It led to a boom as people had money in hand despite the steep downward spiral of the economy triggered by the pandemic, and spent it on goods. This led to a boom in the economy as people switched from spending it on services and shifted to buying products.
This was one of the reasons that led to a demand and supply imbalance. Production had already been hit by the disruption in the supply of goods and components. The disruption continued to affect the world economy for months even after the economy opened up. And this was mainly due to the distribution of the manufacturing process across the world. Disruption in any part of the world will disrupt the manufacturing process across the world.
This is truer when major world economies and China and the US had their manufacturing process disrupted, entirely shutting down for months. It was for months that the situation remained that way, even for more than a year, before things limped back to normalcy. But the damage was done by then.
Saving Stimulus Checks Payments For Tougher Times Ahead
Each stimulus check proved more valuable than the previous one for every household, freeing them from the constraints of debts, poverty, and homelessness. For the first time, people had such simple things as a bank account and were freed from the constraints of what would happen the following month. Millions suddenly found that they were overnight out of a job. But the money helped them recover and even proved to be a pivot to a better way of life.
The stimulus checks did not make people rich overnight, but for a large section of the population, they truly changed the course of their life. For many, if the stimulus checks that came their way had not happened, they would almost have been forced to change their profession and make do with whatever came their way.
The stimulus money prevented such people from taking any desperate steps. They were able to both save and even invest a substantial part of it. They had the luxury of using their payments to plan for a more secure future.
While for some it meant a down payment for their dream house, for others it was seed money to invest in a business of their dream. It got people out of living a lifetime in rented houses, mustering up just enough money to cover the interest, while having nothing to save for their retirement.
Others who were not so hard up and had managed to ensure a source of income through the months of the economic shutdown took more daring steps. Some invested in cryptocurrencies and made a fortune if they got out of it at the right time. Many invested in stocks for the long term and should make a profit as they bought when the market was really down during the pandemic and immediately thereafter.
Many people had the fortune of being able to use their stimulus checks to build a foundation for their future, while others invested it in their children’s education.
But this was possible only for a fortunate few who were able to keep their jobs and were not dependent totally on the stimulus checks for their survival. It was more of their bonus and a section of Americans made good use of it and invested it for a better future.
It remains to be seen how people handle the state stimulus checks. While the amount is considerably less, it is also true that many people have joined the workforce and the inflation relief payments will be a bonus for some.