By Ruiqi Chen
As stimulus checks hit bank accounts around the country, some financially secure recipients want to use their portion to support struggling local businesses, but financial advisors are urging caution.
Congress’s initial $2 trillion economic stimulus package, the Coronavirus Aid, Relief and Economic Security Act, was passed in late March as the cases of COVID-19 reached nearly 200,000 in the United States and fears over the health of the economy grew. Under the stimulus, those who made less than $75,000 in their most recent tax year qualified for a one-time $1,200 stipend.
Makai-Lynn Randall, a 23-year-old operations manager in Bozeman, Montana, and her husband received a combined $2,400 stimulus check on May 12. In 2019, the couple reported a household income of around $55,000, and they are both still employed. Though neither have a financial advisor, they adhere to a strict budget, and without any pressing bills to pay, Randall said they’d like to use some of the money to support local restaurants in Bozeman.
“We don’t get to eat out a lot,” Randall said. “We’re going to take this money and have a couple at-home date nights and just try to put it back into the community as much as we can. I know how much just going in and filling my growler can help (struggling businesses).”
Others echoed Randall’s desire to support local businesses in their neighborhoods, but Maureen Wright, a financial advisor with wealth management company Savant Capital Management in Chicago, said people should not do so at the detriment of their own financial security. She emphasized a basic rule of financial planning: have an emergency savings fund that can cover three to six months of expenses such as rent, groceries and gas.
Since the pandemic began in early March, Americans have filed over 36.5 million unemployment claims. According to an April 21 survey by research group Pew Research Center, 38% of adults consider the economy to be in “poor” shape, compared to only 9% in January. Fears over the economy’s future have also led to protests of stay-at-home orders around the country.
Madeline Franke, a 26-year-old media associate for media agency Starcom MediaVest Group Inc. who lives in Chicago, immediately put her stimulus check into her savings account. Her income was $40,000 last year.
“While I still have an income, if anything were to happen, it would cover a month’s rent for me,” Franke said.
But Franke also wondered if the money would be better used to support small businesses that are facing little to no revenue. For example, she said she contemplated buying gift cards to local clothing boutiques to provide them with immediate and usable cash and saving the gift cards until she actually needed new clothes, but she wasn’t sure if that was a smart move.
Kristin Summers, a Chicago-based financial advisor for wealth services company Ameriprise Financial, cautioned against spending the money immediately.
“We don’t know if we’re in for another couple weeks, if we’re in for a couple months. Who knows if we lose our job?” Summers said. After establishing that three-to-six month emergency fund, she said additional money should go toward eliminating debt such as credit card payments or student loans.
“When you’re on an airplane and they’re going through the safety procedures, they always recommend that you put your oxygen mask on yourself before helping others,” Wright said. “That’s how I look at this situation as well. Make sure you have that safety mask on.”
Once that financial safety mask is on, Wright and Summers said stimulus money can be used to support local economies. Wright said buying gift cards to local businesses, as Franke had considered, would be a good way to help those retailers stay afloat until conditions improve.
The desire to help out local economies is a sign that people might continue to shop local and support small businesses even when times aren’t as tough, Wright said.
States such as Tennessee and Georgia are some of the first to begin reopening nonessential businesses before the end of April after facing growing job losses and struggling retailers. Shops and restaurants in Alaska were allowed to operate again on April 27, though at a limited capacity.
At the same time, cases of the coronavirus in the U.S. have surpassed 1.4 million and are continuing to accelerate, according to the Center for Disease Control.
Jaina Willahan, a 23-year-old furloughed server at restaurant Simon & Seafort’s: Saloon and Grill in Anchorage, Alaska, was one of the millions to file for unemployment benefits in recent weeks and reported $23,000 on her 2019 taxes. She doesn’t agree with recent pushes to reopen the economy before the virus has been contained or testing has been increased.
“It feels like people are putting the economy ahead of people’s lives. It’s quite concerning,” Willahan said.