Congress is likely set to debate on a bill this week that could provide a second COVID-19 stimulus payment. Money could be coming as soon as mid-August or early September if lawmakers act, but there's a possibility the next set of payments won't be as inclusive as the coronavirus money authorized under the CARES Act.
Whether you're slated to get more money or not, chances are good you'll benefit if lawmakers give people more COVID-19 cash. Here's why.
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COVID-19 stimulus payments help stimulate the economy
When people receive a coronavirus stimulus check, this money often ends up going back into the economy rather than just being socked away in bank accounts. And that's especially true if payments are made to people who are struggling the most, which could happen if the second COVID-19 payment is made available only to those with lower incomes. Some stimulus proposals would even require people to spend the money in order to get it, as they'd be structured as tax credits for dining and travel.
The last stimulus payment was widely available to most Americans and could be used for anything, but the data clearly shows it still encouraged an increase in consumer spending. In fact, according to the National Bureau of Economic Research (NBER), American households responded to the CARES Act stimulus payment by using it quickly to buy goods and services. Specifically, NBER's data showed that spending rose by $0.25 to $0.30 for each dollar of direct aid that was made available. And that was just within the first 10 days the cash was received.
A second payment is likely to have similar results, or perhaps increase spending even further. People may be in more dire financial straits now, after several months of business closures, than they were when the first payment was made. And if people go out and quickly spend the COVID-19 money politicians provide for them, it will be a big benefit for every American -- even those not included in the next stimulus check.
With the country officially in a recession and consumer confidence showing a massive decline, people may be hoarding cash out of fear their jobs will be terminated, their expanded unemployment benefits will end, or the stock market will crash again. And if consumers don't spend money, the economy can't recover, because businesses depend on these dollars. Unemployment rates just rise further when this happens, deepening the recession and making people even more afraid to go out and buy.
If lawmakers take action and provide a second stimulus payment that people quickly spend, it could stop this cycle, perhaps bolstering the stock market, and possibly helping the country speed up its economic recovery.
Will Congress authorize more stimulus money?
If lawmakers act and provide Americans with a second direct payment soon, it's likely households across the country will once again increase their spending, just as they did the last time immediately after receiving checks. Action from Washington could also help put consumers' minds at ease by showing them the government won't abandon Americans as long as the economy is in trouble due to COVID-19.
Unfortunately, it's far from clear that a second coronavirus stimulus payment will come. There's reason to be optimistic, but lawmakers disagree on a number of fundamental issues and they have only a limited amount of time to act. It's best to make sure you're prepared if they don't. If you aren't slated to get a second payment anyway, you can still ensure you aren't over-exposed to stocks in your portfolio given your age and risk tolerance, and confirm you have a sound investment strategy you're confident in, even during a recession. If you have spare cash, you may also want to plan to take advantage of buying opportunities that could arise if the market tumbles.
These are good steps to take regardless of what lawmakers do, but you may be very happy you were proactive now, in case politicians fail to provide another boost to the economy.
