How to make the largest impact with your $1,200 stimulus check

Posted at 4:06 PM, May 26, 2020
and last updated 2020-05-26 18:49:59-04

CLEVELAND — This week, Americans who make up to $50,000 dollars a year should get their $1,200 stimulus checks through the CARES Act in the mail.

Many other people have already gotten their money in their bank account through direct deposit.

With $2 trillion set aside to help the United States through the coronavirus pandemic, it's still hard to see if the money sent directly to private citizens will help.

Jeneen Hobby and her husband have been put in a tough spot because of the coronavirus pandemic. Her husband's salary has been cut in half and she usually doesn't get any salary over the summer as a part-time Professor at Cleveland State University.

Her side business selling photography depends on in-person markets and shows that have all been canceled or postponed because of the coronavirus.

"When I'm not there, I can't sell them," Hobby said, referring to her photography.

Hobby is still waiting on her $1,200, but when her husband's stimulus check came in, much of it went towards paying down bills so they can save the rest of the money.

"We have to make sure that we are stocking away everything we possibly can in case something really goes wrong," said Hobby.

That move might make sense for many people, but it's not exactly what Congress had in mind when they sent Americans that cash.

"So the intent of the stimulus checks was to get people to go out and spend," said Case Western Reserve University Professor of Banking and Finance Dr. Lakshmi Balasubramanyan.

Balasubramanyan says the population is essentially split into two kinds of people: people who have "liquidity," or cash in their bank account not tied up in investments, and those who don't.

The people with the cash are more likely to spend their stimulus checks, helping boost the economy, creating a bigger "fiscal multiplier effect."

How to get your stimulus check faster
Blank stimulus checks are seen on an idle press at the Philadelphia Regional Financial Center, which disburses payments on behalf of federal agencies, in Philadelphia, Thursday, May 8, 2008. The first batch of rebate payments started hitting bank accounts last week through direct deposits. Treasury Secretary Henry Paulson, Vice President Dick Cheney and other Bush administration officials are visiting government check printing centers around the country on Thursday for events highlighting the fact that millions of rebate checks are in the mail. (AP Photo/Matt Rourke)

People who already have more cash are more able to cover whatever costs come up and they are more likely to save their stimulus check, keeping it away from local businesses.

"You might have a situation where you just have sort of close to zero impact depending on how this multiplier effect plays out in these two groups," said Balasubramanyan.

It's still too early to tell what the ultimate impact will be.

An early study of 44,660 households by the National Bureau of Economic Research backs up Balasubramanyan's assessment, but this economic reboot is so unique because of the coronavirus.

The last time the United States was in a similar situation was The Great Recession in 2008, but even that wasn't influenced by a virus we didn't know much about.

"When people feel confident and people feel safe, they are going to go out and spend," Balasubramanyan said.

That's why she says the medical and economic advice tend to overlap right now. Experts say the more social distancing and mask-wearing everyone does in public, the more the virus will slow down.

"[If we're] making sure that the transmission of the disease is mitigated, then the transmission of the fiscal policy would be a lot better," Balasubramanyan said.

Here are five tips from Balasubramanyan about how spending your stimulus check can have the largest impact:

  • Pay immediate needs like rent, bills, mortgages, other expenses
  • Pay down debt with high interest rates, like many credit cards
  • Spend what you can in the community at local businesses
  • Invest in stocks as the economy recovers
  • Take advantage of low interest rates and use the stimulus money as a down payment on a larger purchase like a house or car

Watch Kevin Barry's full interview with Balasubramanyan below:

Full interview with economic expert on the impact of the stimulus payments