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Why it matters when this stimulus check money hits your account.

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As the Internal Revenue Service starts cutting a second round of direct relief checks, the waiting may be the hardest part for people who just want their cash — or badly need it to cover basic living costs.

The waiting is also a critical part, according to new research from Boston University and Brown University economists who looked at what happens when people have time to mull over a financial windfall.

More time spent expecting an unplanned sum led to less spending of the money and more saving, said Linh Tô, a professor at Boston University, and Neil Thakral, a Brown University professor. They arrived at that point by dissecting data from stimulus payments during the Great Recession, as well as prior research on spending habits in experiments based in Kenya and Malawi.

For example, when it came to the 2008 stimulus payments, eligible individuals generally received $600 and married couples $1,200. Then–President George W. Bush signed the bill in mid-February 2008, and by late April the IRS started churning out checks in multiple tranches.

Don’t miss: Is my stimulus check taxable income? Will it reduce my tax return? Burning questions about the second COVID-19 stimulus.

When the researchers analyzed weekly spending for people
reporting receipt, they found that “faster disbursement of stimulus payments
leads to a substantial change in spending behavior, with households receiving
payments at the earliest date spending twice as much as the average household.”

For households receiving the payment in the week spanning late April to early May 2008, there was an estimated $65.25 increase in spending during the four weeks that followed. The increase was $45.24 for households receiving the money one week later, and $18.73 for households receiving the payment two weeks later, according to the research.


‘Longer payment delays make it more likely that households save their stimulus checks, which undermines the goal of stimulating the economy by boosting consumption.’


— Linh Tô, Boston University

The lull between promised money and payment may give
recipients time to think through the best way to use the money and put more
weight on saving for future expenses, they said.

Depending on the big-picture goals for the money, the authors said, this may not be the best outcome.

“When policymakers intend to stimulate spending, as in the case of tax rebates, our results highlight the importance of rapid disbursement of payments,” they wrote. “To encourage longer-term investments, as policymakers may desire when delivering cash transfers to impoverished households, announcing payments in advance may lead to more future-oriented decision making.”

The research comes as the IRS starts distributing $600 checks as part of the $900 billion COVID-19 rescue package that President Trump signed Sunday. Direct deposits began Tuesday night and paper checks started going out in the mail Wednesday.

The CARES Act doled out 160 million economic impact payments beginning in early April, and the savings rate initially soared before gradually declining. One study looked at spending and saving habits of households that got their money by April 21, and found they generally spent between one-quarter and one-third of the check in the first 10 days.

Political wrangling over a second wave of checks and more government aid started in the summer and stretched into winter.

That’s a lot of time to think over what to do with more money. But for cash-strapped households, it’s also been a lot of time to drain checking and savings accounts, leaving them with little choice but to spend the incoming money. As news of the $600 checks spread, some on social media panned the amount and said it would do little to help them.

The research sheds light on two ways to increase the
effectiveness of direct payments that are meant to kickstart the economy, Tô
told MarketWatch. “Longer payment delays make it more likely that households save
their stimulus checks, which undermines the goal of stimulating the economy by
boosting consumption,” she said.

Secondly, “a smaller payment amount would be more ‘effective’ in the sense that consumers would spend a larger fraction of it (and the government could use the rest of the money for other purposes) — but of course, there are other important considerations that would justify sending larger checks,” she said.

As $600 checks start hitting bank accounts, the fight to increase payments to $2,000 continues. But for now, based on those two points, Tô said “we’d be better off getting the $600 checks out quickly and then adding more installments if we want to go higher.”

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