by Christy Bieber | May 4, 2021
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Stimulus checks made a huge impact on household income, but the news isn't all good.
When President Joe Biden signed the American Rescue Plan Act in March, the law entitled most American families to receive a stimulus check valued at $1,400 per person (including dependents). This was the largest of the three stimulus payments that the government has issued to date in response to COVID-19.
The money has made a huge impact; in fact, economists expect that household income in March may have increased by the largest amount ever recorded. That's the good news. But there's also some potential bad news on the horizon.
Here's what you need to know.
Revealed today: Access our expert’s top cash-back credit card pick that could earn you upwards of $1,300, all with no annual fee.
Get free access to the select products we use to help us conquer our money goals. These fully-vetted picks could be the solution to help increase your credit score, to invest more profitably, to build an emergency fund, and much more.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
Most Americans received their stimulus payments either as a deposit into their bank accounts or via check in March or early April.
As a result of this substantial influx in government funds, economists project that household income rose around 20% in March of 2021 compared with the prior month. Household income is a measure that includes money from multiple sources. It includes not just earnings from work but also government benefits and money earned from investments.
If this 20% income projection bears out, this would be the largest monthly increase in income since the government began keeping records in 1959.
Unsurprisingly, this has also driven up consumer spending, with economists projecting a 4% increase in consumer expenditures. People who received stimulus checks increased total consumer spending more with the third check than with either of the first two. This is likely because this check was for more money and because there was more to spend it on now that restrictions on business operations have eased considerably since the first two checks were signed into law.
While it's generally a good thing for individuals to see their incomes go up -- and a good thing for the economy when more consumers start spending money -- this can lead to a rise in inflation. Inflation occurs when prices rise in response to a surge in demand that businesses struggle to keep up with. When inflation occurs, purchasing power falls because prices are higher and the same dollar can't buy as many goods and services.
Unfortunately, some key economic indicators, including a personal consumers expenditures index that excludes food and energy prices, suggest that inflation is rising. That's not a great thing, especially for savers, because it means their money won't go as far.
Although the potential of rising inflation could be bad news, the chairman of the Federal Reserve, Jerome Powell, believes that the one-time price increases that happen when demand surges as the economy reopens will just be a temporary thing and inflation won't continue rising. Powell also indicated that the Federal Reserve will be working to make sure that doesn't happen.
For consumers, of course, there's little that individuals can do to fight inflation. But if you haven't spent your stimulus check yet, it may not be a bad idea to put some in the bank in case the cost of goods and services does go up over the summer and beyond and you need a little extra cash to help you get by.
If you have credit card debt, transferring it to this top balance transfer card can allow you to pay 0% interest into late 2022! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read The Ascent's full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.