Stop Stimulating the Economy!

Government "stimulus checks" have been hitting mailboxes in recent weeks, and it appears that the recipients are actually using them to stimulate spending. According to the Commerce Department, retail sales jumped 1% in May, double what economists had anticipated. General-merchandise stores, like department stores and discount retailers such as Wal-Mart (NYSE: WMT  ) , have been the biggest beneficiary; their sales have risen 1.2%, the best showing since a 2.1% increase in March 2007.

Of course, other beneficiaries have included ExxonMobil (NYSE: XOM  ) , Chevron (NYSE: CVX  ) , and the other oil companies, which have been eating a big chunk of your check. Gasoline service stations reported sales rising 2.6%, mostly from soaring pump prices, which have pushed gasoline to more than $4 a gallon nationwide. Worse, Energy Department analysts are forecasting that the national average price of gas will probably peak around $4.15 a gallon later this summer.

Stimulate me
First, let me make a personal plug for my portfolio. I want to join in the chorus of cheerleaders helping to revive our moribund economy -- spend, spend, spend! After all, I own a few stocks that could use some stimulating. Aside from Wal-Mart, Pacific Sunwear (Nasdaq: PSUN  ) is 60% off its 52-week highs, and supermarket chain Kroger (NYSE: KR  ) is down 10%. Let's spread the wealth around.

The typical rebate check for single filers is $600, while many married couples will get a $1,200 check. Parents get an extra $300 for each child under age 17. Although buying a few extra groceries or some T-shirts, or even filling up your SUV a few extra times, might seem like a good use of the found money, in reality there are better alternatives for using this windfall.

Pay down your debt
According to the latest statistics from the Federal Reserve, total U.S. consumer debt stood at $2.56 trillion in April -- excluding mortgage debt. That's up from $2.39 trillion at the end of 2006. While the average credit card balance is around $2,200, some 40% of all credit card holders carry a balance of less than $1,000. With average interest rates higher than 13% annually, using your stimulus check to pay off your credit card bill could end up saving you hundreds of dollars. If you’re looking for some other ways to pay down your debt, check out the Motley Fool's Credit Cards and Consumer Debt discussion board.

Save for retirement
Out of debt already? Investing that $1,200 check in a Roth IRA where you earn a conservative 7% annually will give you have more than $9,000 after 30 years. Bump that up to the market's historical 10% average return -- say, by putting it into an index fund like the Vanguard Total Market Stock Index (FUND: VTSMX  ) -- and you would turn it into almost $21,000, even if you never contribute another penny toward it. Check out the Rule Your Retirement newsletter for other helpful tips to help you take control of your retirement.

Put your kids through college
The way tuition costs have risen lately, you're probably not going to be able to turn that $1,200 into enough to put Johnny through four years of higher education. The College Board says that the average cost of a private, four-year college is $23,712, up 6.3% from last year, while public colleges cost on average $6,185 a year. And that's just for tuition and fees. Still, $1,200 invested in a 529 plan for 18 years at 7% interest is more than $4,000, while at 10%, you'll get more than $6,600.

Boost your 401(k) contribution
You could boost your contributions to your 401(k) by an extra $400 a month for four months with that $1,200 check. No, I didn't get my math wrong -- thanks to the tax benefits of 401(k) plans, you basically get $1,600 for the price of $1,200 if you're in the 25% tax bracket. Check out the Fool's 401(k) Center for more ideas on maximizing your retirement plan.

Foolish considerations
When it comes right down to it, there are far better ways to use the money the government is giving us than simply spending it. Sure, the supposed purpose of the checks is to stimulate the economy -- and if the analysts are right, they're beginning to have the desired effect, even if it is only temporary. Still, a more long-lasting solution would be to save and invest that money wisely so that you can stimulate your financial future.

Wal-Mart is a Motley Fool Inside Value pick. Pacific Sunwear is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of Wal-Mart, Pacific Sunwear, and Kroger, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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