Americans Are Sitting on $2 Trillion in Pandemic-Era Savings. Here's What to Do With Your Share

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  • Stimulus policies in 2021 pumped lots of money into people's wallets.
  • Those who haven't spent all of that cash should use it wisely in light of a potential future recession.
  • Use any excess stimulus cash to increase your emergency fund and pay off debt.

It's important to be strategic with your spare cash.

In March of 2021, the American Rescue Plan was signed into law, and that bill put a lot of stimulus funds into consumers' bank accounts. Not only did Americans receive a third round of direct stimulus checks worth up to $1,400 apiece, but families with children received extra money via the boosted Child Tax Credit.

Now, it's fair to assume that a lot of that stimulus money has since been spent, especially given the way inflation has driven the cost of living upward in recent months. But JPMorgan Chase CEO Jamie Dimon estimates that Americans are still sitting on $2 trillion in stimulus funds. And if you still have some stimulus money left over, it pays to put it to good use, especially in light of a potential recession that might hit later this year or early next.

Wait, a recession?

Before you work yourself up into a panic, know that a recession isn't guaranteed to happen, and if it does happen, it may be mild and short-lived. But it's a possibility everyone should prepare for. And if you have leftover stimulus funds, you're in a great position to do just that.

Shore up your savings

The pandemic taught us how important it is to have a solid emergency fund. And with a recession potentially on the horizon, it's more essential than ever to make sure you have adequate cash reserves in your savings account.

Before the pandemic, most financial experts recommended socking away enough cash to cover three to six months of living costs. In light of the massive unemployment crisis the COVID-19 outbreak fueled, now, many of those same experts are advising that consumers save up enough money to pay for six to 12 months of bills.

Either way, if your emergency fund could use a boost and you still have stimulus funds you haven't spent, you may want to tuck that cash away in the bank. That way, if your personal financial situation worsens, you'll have more of a cushion.

Pay off debt before it starts costing you more

A big reason financial experts are worried about a recession is that the Federal Reserve is in the process of raising interest rates in an effort to slow down inflation. By making it more expensive to borrow money, the thought is that consumers will start to spend less, thereby bridging the current gap between supply and demand. But if consumers start cutting back too much, it could lead to poor economic conditions and widespread layoffs -- hence the recession threat.

Meanwhile, borrowing will likely get increasingly expensive this year as the Fed forges ahead with its plans. And so if you have debt with a variable interest rate attached to it -- think a credit card balance or HELOC -- then it makes sense to use your leftover stimulus money to pay it off before your borrowing rate climbs.

Knocking out that debt will also help if economic conditions deteriorate and you lose your job. That way, you'll have one less expense hanging over your head.

It's easy to argue that last year's influx of stimulus funds created an imbalance between consumer demand and supply that's led to rampant inflation. And now, in an effort to cool inflation down, actions on the part of the Fed could spur a recession. If you're sitting on leftover stimulus money, be sure to make the most of it -- before things take a turn for the worse.

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