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Every American who made at least $3,000 and filed a tax return in 2007 (other than very high earners) will soon receive an economic stimulus check from the IRS. Individuals will receive up to $600, couples as much as $1,200, and more may be coming for those with dependant children. The Federal Government hopes that you will spend your economic stimulus check quickly in order to jump-start the U.S. economy. There is absolutely nothing wrong with spending this money on necessities. However, once you have paid your bills, I hope that you will consider putting the rest of that money to good use to help secure your family’s financial future.
Permit me to offer some food for thought:
To begin with, the economic stimulus checks are not just extra money that the Federal Government has decided to give us. The check you receive is a rebate of money you already paid in taxes. It is your money, you have every right to it, and you do not need to feel any “duty” to spend it all right away.
Although the Federal government is borrowing the money to send these checks, that approach is not a responsible model for each of us to follow in our own finances. On the contrary, here are two basic steps you should take to help weather the current slowdown in the economy and be prepared for the next time a downturn occurs.
- Pay down high-interest revolving debt. Long-term debt, like a home mortgage or college loan, might be considered a good investment, but short-term debt with high interest rates – like credit card balances that are carried from month to month – will really sap your bottom line. Ongoing consumer debt has high interest costs that will bleed you for a long time. It is the worst of all worlds, and you should push yourself to get out from under this kind of debt as soon as possible.
- Find ways to save. One of the best predictors of how well an individual or family will do in the long run is whether or not they have found ways to put away an emergency fund. Unexpected expenses eventually find their way to every doorstep. Illness, layoff, divorce, or car repairs can bankrupt you if you are not prepared. Save an emergency fund equal to at least three months of your family’s usual income (six is better), and you will be prepared if misfortune strikes.
A good way to get started saving is to join the America Saves program, which is taking root in Ohio thanks to a broad partnership between the Ohio Treasury, The Ohio State University Extension program, and Ohio United Way. Financial institutions around the state have agreed to offer no-fee and low-fee savings accounts that will help small and beginning savers to succeed. For more information or to get involved with this new effort, visit www.YourMoneyNowonline.org.
Another option for personal savings that I hope will soon be available is the SaveNOW initiative that I have proposed to the Ohio legislature. Under SaveNOW, the State Treasury would work with Ohio banks to incentivize higher interest rates on savings accounts started by participants in the program. For more information about SaveNOW, visit www.YourMoneyNowonline.org.
Perhaps the Federal Government would rather you spend your stimulus rebate on consumer goods than save it. You should not feel pressured to spend all that money, however, in order for the economy to recover, especially if different choices would better advance your family’s financial security. Paying down high-interest debt will let you keep more of your own money month in and month out, which you can then save or invest. And a healthy savings account means freedom: freedom to make the best choices for your family, and freedom from the constant worry that you would be financially ruined if large unexpected expenses should strike.
Remember: Your personal savings also stimulate the economy by providing deposits to banks so that they can make commercial loans. Families that are financially healthy are very good for the economy too. So do your part, but don’t buy the hype.
Richard Cordray is the Ohio Treasurer and the web site is www.ohiotreasurer.gov.
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