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The Sam M. Walton College of Business

What’s the Best Way to Use That $1,200 Stimulus Check and Help the Economy?

Stimulus Check

April 9, 2020 | By Raja Kali

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The $2 trillion dollars the U.S. government will send out over the coming weeks and months has been labeled as a “stimulus” to for the economy, although there are those who argue that it’s really more like “disaster relief.”

Regardless, many Americans will get a check for up to $1,200, with up to an additional $500 per child for some, as a part of the Coronavirus Aid, Relief and Economic Security Act. And it raises the question: If you want that money to actually help stimulate the economy, what’s the best way to put it to use?

For those facing dire financial situations due to a loss of normal income, the top priority will be to use the money on the basic necessities of life. Of course, the key word there is “necessities.” Spending it on a new television or on a shopping spree at a liquor store might have some positive impact on the economy, but those are far from wise investments if it means the family goes hungry a week later.

But what about those Americans with a wider range of choices for how to use some or all of the money? Let’s look at some of options that have been suggested:

  1. Give it to local charity.
  2. Many local charities like a food pantry or homeless shelter will spend your donation almost immediately on things like food or other supplies that support their mission. In that case, it goes directly into the economy in the form of a boost on the demand of the products they purchase. So not only will the donation help people in need, but it will provide some stimulus to the economy.

  3. Pay off debt.
  4. Generally speaking, this is a good time to switch any loans you have from high-interest to low-interest, but interest rates are so low right now that it’s actually a good time to borrow money. Paying off debt is not a particularly good way to spend the money if the goal is to help immediately spur the overall economy.

  5. Invest in the stock market.
  6. At the moment, investing in the stock market is not for the faint-hearted. It’s hard to predict where this will all end, and it’s hard to time the market as an individual investor. While an investment would help companies operate, this is not the best time to invest in the stock market when compared with other options.

  7. Put it in a savings account.
  8. Again, interest rates are really, really low. The Federal Reserve has slashed rates to very close to zero, with the benchmark rate between 0.25% and 0.5%. If you put it in a savings account, it’s almost the same is sticking your money in your mattress. You’re not really going to earn meaningful returns on it.

  9. Spend it with a local business.
  10. If you want your stimulus check to have an impact on the economy, the best option is probably spending it on take-out, gift cards or in some other way that directly supports local business. With the restrictions in place because of the pandemic, local restaurants are really hurting and many other local businesses have seen sharp declines in the number of customers. Spending with these businesses will inject money into the local economy, allowing businesses to pay employees and continue ordering products and supplies from other businesses.

    Where I live in northwest Arkansas, two Walton MBA alumni (Stan Zylowski and April Seggebruch) created a website where people can purchase gift cards for small businesses in the area. Whether you make a purchase online, at a drive-through or over the phone, the business will benefit and so will economy it supports.

Post Author:

Matt WallerRaja Kali is chair of the Department of Economics in the Sam M. Walton College of Business, and the ConocoPhillips Chair Professor in International Economics & Business. His areas of research include networks in trade and finance, industrial organization, development economics, and economics and finance of emerging markets.