Consumers' Stimulus Dilemma: Spend, Save or Pay Down Debt?

Summary

---

Podcast Summary:

WSJ Your Money Briefing
Episode: Consumers' Stimulus Dilemma: Spend, Save or Pay Down Debt?
Date: January 26, 2021
Host: J.R. Whalen (Wall Street Journal)
Guest: Harriet Torry (WSJ Economics Reporter)

---

Episode Overview

This episode explores what Americans are doing—and might do next—with their government stimulus checks, particularly in the context of President Biden’s proposed $1.9 trillion COVID-19 relief plan. The discussion focuses on the choices consumers face: whether to spend, save, or pay down debt, and the implications for economic recovery as the pandemic continues.

---

Key Discussion Points & Insights

How Americans Used the First Round of Stimulus Checks

• Many people urgently needed stimulus money for essentials like rent, food, and bills due to high unemployment in early 2020.
• Breakdown of responses to first-round stimulus:
  • Saved: More than a third of recipients saved the money.
  • Used for Debt: About another third used it to pay down debt.
  • Spent Immediately: Under 30% was spent right away, primarily on necessities (02:33–03:45).

“It turns out that really more than a third ... of the fiscal stimulus checks did get saved by consumers. And then about ... that same amount again was used to pay down debt. So it was sort of under 30% that was spent right away.”
— Harriet Torry [03:05]

• Those with ongoing employment tended to save their checks, creating a financial buffer against future uncertainty.

The Spike in the US Savings Rate

• Government stimulus helped push the nation’s savings rate to nearly 13%, its highest level since just after the Great Depression (01:58).
• The pandemic made Americans cautious, leading to reduced nonessential spending and increased emergency savings (04:18).

“We saw the savings rate just spike to these levels that ... hadn't been seen basically since the Depression because people were so fearful... they really put the wind up people and put fear into people.”
— Harriet Torry [04:35]

Economic Hopes for 2021: Will People Start Spending?

• Economists are cautiously optimistic that, as vaccinations increase and the pandemic threat recedes, Americans will spend accumulated savings, accelerating economic recovery (05:38–06:50).
• The timeline for increased spending will largely depend on the success of the vaccine rollout and people feeling safe.

“The economic outlook hinges completely on the health crisis. If there’s no resolution of the health crisis, then there is no economic recovery.”
— Harriet Torry [05:41]

The Potential Impact of Biden’s $1.9 Trillion Relief Plan

• Biden’s plan includes additional direct checks plus extended unemployment insurance supplements (07:26).
• Extra government support is likely to boost household finances, especially after the slow start to 2021 due to the winter surge in COVID cases.

“Economists are expecting that after the first quarter, that growth should really pick up pretty nicely.”
— Harriet Torry [08:13]

Where Will the Money Go?

• If pandemic conditions improve, economists expect a shift in consumer spending:
  • From Goods to Services: While spending on items like home fitness equipment and supplies has been strong, pent-up demand is likely for experiences—restaurants, travel, events (08:21).
  • This rebound in services could spur rapid job growth in sectors hardest hit by COVID-19 related job losses.

“The hope is that this will create a sort of virtuous circle, because those are industries that were very hard hit by job losses during the pandemic... So the idea is that if people suddenly want to go out and dine out again... there will need to be this big pickup in hiring in the services industries.”
— Harriet Torry [08:42]

• Unusually, many households have both the means and the desire to spend, which could lead to a swift recovery in services and employment.

---

Notable Quotes & Memorable Moments

• On persistent uncertainty:
  “People want to go out and enjoy themselves and spend the money and travel and see relatives... and just they think that this could give the economy really a big boost in growth.”
  — Harriet Torry [06:42]

• On the unusual nature of this recession:
  “That hasn’t been the case necessarily in this recession, of course, some people have suffered enormously, but many households have been working from home and they’ve been saving money. So they have the money to spend...”
  — Harriet Torry [09:29]

---

Timeline of Important Segments

• 01:58: Savings rate hits historic highs.
• 02:33–03:45: Detailed breakdown of how Americans used their stimulus checks.
• 04:18–05:27: Fears boosting savings, effect on the economy.
• 05:38–06:50: Recovery outlook tied to vaccines.
• 07:26–08:16: Biden’s relief package and expected economic effects.
• 08:21–10:07: Expected shift in spending—prospects for services and employment.

---

Conclusion

The episode makes clear that while many Americans have built financial cushions from stimulus payments, the country’s economic recovery depends crucially on overcoming the health crisis. A combination of new stimulus measures, a successful vaccine rollout, and pent-up demand for services could spur a strong rebound—potentially reversing pandemic-era job losses faster than in past recessions.

---

Transcript

[A]

Access to affordable credit helps me pay my employees, but I don't really need it. Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[B]

See banks and credit unions help small businesses make payroll.

[A]

This bill would cut the vital resources

[C]

they need while increasing megastore profits.

[A]

They deserve it, don't they?

[B]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by

[A]

the Electronic Payments Coalition.

[C]

Here's your money briefing for Tuesday, January 26th. I'm J.R. whalen for the Wall Street Journal. A big chunk of President Biden's $1.9 trillion COVID 19 relief proposal is meant for a new round of direct stimulus payments. One goal is to help kickstart the economy. But earlier rounds of stimulus have shown us that it's not a given that Americans will run out to put that money into the economy.

[A]

And what every economist will tell you is that the economic outlook hinges completely on the health crisis. If there's no resolution of the health crisis, then there is no economic recovery.

[C]

Coming up, our economics reporter Harriet Tory will discuss what another potential stimulus check could mean for Americans saving and spending habits. That's after the break.

[B]

This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity. They innovation. ReliaQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.

[C]

One effect of the government stimulus program has been to push the nation's savings rate way up to nearly 13%, the highest since the period following the Great Depression. But economists are hoping Americans will spend that saved up money later this year and accelerate the economy's recovery. Our economics reporter Harriet Tory is here to talk about it. Harriet, thanks for taking the time to be with us.

[A]

Hi. Thanks.

[C]

So we've talked on the show before about how a lot of people were socking away the federal stimulus, you know, the $1,200 checks that were sent out last year instead of spending them. What do we know about how people spent and saved the first stimulus checks?

[A]

Based on what we know, you know, from various studies and surveys and so on, it looks like you Know, of course, when these payments came through, the first round of stimulus payments in March, some people needed the money really urgently. You know, there was very high unemployment, and people needed the money right away. It spent it on food and rent and bills and things like that. But. But it turns out that really more than a third of the. Of the fiscal stimulus checks did get saved by consumers. And then about. About that same amount again was used to pay down debt. So it was sort of under 30% that was spent right away. And the rest of it, you know, people held onto it. Of course people held onto it because there was a lot of anxiety, a lot of concern and uncertainty about the future. And, you know, when people are worried about losing their jobs, it's. They, you know, they've been building up their financial buffer in a big way. But what we're beginning to see is that people are now saying they, you know, some consumers have received their second stimulus checks. And then, of course, many, many people who have received these checks are actually still working. There is a big, you know, there are. There are a lot of people who are unemployed and really need that money to get by and to buy food every day. But many other people, although they're receiving the stimulus checks, they do also still have jobs, so they're putting the money aside. And, you know, for some people, this is. This is nice security to have in case there was an emergency. They have a bit of a financial buffer. But others are starting to think ahead. We're seeing a rollout of vaccines, and for some people, they've got all these savings, and they kind of want to maybe spend it on something a bit more fun. We have people saying, well, I want to save my money for a vacation, or I've been stuck in lockdown all these months. I want to put my money towards dining out when I can.

[C]

Again, we hear a lot of advice about how much you should save. What do economists say about that? And do they hope Americans develop better saving habits as a result of the pandemic?

[A]

Yeah, I mean, it's interesting that, you know, there's the old saying that one man's spending is another man's income. So, you know, in some sense, it's. You can. You can save too much. It can be bad for the economy if you, if you're, you know, so if there's so much saving, especially with interest rates being pretty low, it's not like you're getting a big return on those savings. But this has been an exceptionally weird time during COVID because, you know, we saw the savings rate just spike to these levels that it hadn't been seen basically since the depression because people were so fearful and you know, they just, you know, really reined in the non essential spending out of concern that, you know, of job losses or of illness or extra medical bills, of, you know, all of these enormous unknowns. They really put the wind up people and put fear into people. And so we have seen this big increase in rainy day funds. But of course, you know, if things do start to ease and we start to, people start to get more comfortable with going out and about and spending again, then perhaps some of these people will just be ready to spend some of this money that they've been saving up. And that's really potentially a very, a big boost for the consumer driven economy.

[C]

Well, we've been down this road before. The economy improved in 2020 and then rising Covid cases wiped away that progress. What are the expectations for saving and spending as the vaccine is rolled out?

[A]

What every economist will tell you is that the economic outlook hinges completely on the health crisis. If there's no resolution of the health crisis, then there is no economic recovery. In a sense, you know, people have to be able to feel safe in order to go out and go to the beach and go to the restaurants and go to the bars. Without that, they're just not, you know, people are just going to remain holed up and too scared to travel and to mingle and to, you know, spend freely. And that is definitely a warning that a lot of economists are saying, you know, the strength of this rebound, this expected rebound is going to hinge on how the vaccination program goes, really. And most economists expect that it'll be sort of in the spring that people, you know, that maybe we get some sort of critical mass of numbers of people vaccinated and consumers start to feel a bit more comfortable about spreading their wings and perhaps returning to restaurants, returning to movie theaters and so on. And for that to sort of gain momentum over the second half of the year. I mean, who knows, maybe it won't be the spring, maybe it'll be more like, you know, the summer or even the fall. But they do see this coming. And you know, economists are hopeful that this money that people have saved up, which is really a lot of money, we're talking over a trillion dollars more savings sort of sloshing around in people's bank accounts. And after all these months of being in lockdown, people are really kind of raring to go in many ways. People want to go out and enjoy Themselves and spend the money and travel and see relatives, visit people, and just they think that this could give the economy really a big boost in growth.

[C]

So is there anything else aside from the stimulus checks that are proposed in President Biden's $1.9 trillion plan that could jumpstart consumer spending?

[A]

President Biden is calling for this new. For a new Covid relief package, and that. That would, you know, send out more money in the form of direct checks, but it would also bring back extra insurance, unemployment insurance supplements that we did see at the beginning of the pandemic, and that then they then sort of timed out over the summer. So that would be a potentially, you know, even more money coming into people's pockets. It's interesting, and like a lot of economists are pretty pessimistic on growth in the first quarter because we've seen this big jump in Covid cases. And also headed into the first quarter, it wasn't until the very end of December that we saw the $600 checks come through in the second round of stimulus. But now that, you know, those checks have mostly gone out and we have this prospect of extra support in this in the form of a new relief package, economists are expecting that after the first quarter, that growth should really pick up pretty nicely.

[C]

Now, what activities are we expecting people to spend on first if and when the new checks go out?

[A]

Services is the big sector that is expected to be impacted by this. I mean, one thing that we've seen during the pandemic is that spending on durable goods has remained really high because people have stayed at home and they've been buying things like, you know, exercise bikes and home improvement supplies. But now, you know, if people are able to get out and about again, the expectation is that they really want to spend on experiential things like going to concerts, going to bars, going to restaurants and traveling. And the hope is that this will create a sort of virtuous circle, because those are industries that were very hard hit by job losses during the pandemic. You know, bars and restaurants really shed a lot of jobs when businesses had to close down. So the idea is that if people suddenly want to go out and dine out again and go out and party and things, that there will need to be this big pickup in hiring in the services industries in order to staff up to serve all these customers who are sort of beating down the door because they want to meet up with their friends and so on. And that will create a kind of virtuous circle where, you know, hopefully, unemployment, the unemployment situation will improve rapidly, which is unusual because usually what happens after a recession is that businesses tend to hire cautiously. And also people have been sort of they might have lost income in the recession, so they will be hesitant about spending and so on. That hasn't been the case necessarily in this recession, of course, some people have suffered enormously, but many households have been working from home and they've been saving money. So they have the money to spend and, you know, the inclination to perhaps go out and start doing things again quickly. So the hope is that that will have a big impact on employment because, you know, once people decide that they are ready for that vacation or they want to go to a theme park, that those places will need to hire in order to meet the increased demand.

[C]

All right, that's Wall Street Journal economics reporter Harriet Tory. Harriet, thanks for coming on the show.

[A]

Thank you.

[C]

And that's your money briefing. I'm J.R. whelan for the Wall Street Journal.

[B]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portf. Listen @schwab.com washingtonwise.