Consumers for years have done more than their share of propping up the economy. And what do we have to show for it? Steep credit card debt. Little or no savings for retirement or college. Rising bankruptcies. More late payments on car and home equity loans.
Yet now, with the economy in danger, politicians are calling on consumers to spend even more. They're even giving us the cash to do it.
Instead of spending the $300 to $1,200 tax rebates we'll be getting, use it to improve your finances. Pay off high-rate credit card debt. Invest in a 529 college savings plan. Start an emergency fund. Salt away money for retirement. Do something that will leave you in better financial shape - not just for a week or month, but longer term.
"You listen to some people and it's almost unpatriotic if you don't take the money out and spend it right away," says Thomas P. Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants. His group co-sponsors a savings campaign called "Feed the Pig" - as in piggybank.
"You can be patriotic and save the money," he says.
That's not what economists want to hear, of course. The tax rebate is supposed to stimulate the economy. It's worked in the past, some economists say.
The current rebate is modeled after the one in late summer 2001, when about two-thirds of households received rebates of up to $600.
A National Bureau of Economic Research study found that about two-thirds of those rebates were spent within six months. The recession ended in November 2001.
Economists say saving or investing the rebate helps the economy in the long run, but what's needed now is a short-term fix. They want you to spend. And, if they had their way, you would buy American-made products and services so you create jobs here, not in China.
Without a boost in short-term spending, the economy could topple into a recession and workers could lose their jobs, warns Diane C. Swonk, chief economist with Mesirow Financial.
Those closest to living paycheck-to-paycheck are more likely to spend the money, Swonk says, which is why she favors rebates for lower-income households.
Under the proposal agreed to in Congress, a worker earning at least $3,000 but not enough to pay income taxes will receive a $300 rebate. The maximum rebate will be $600 for single taxpayers with income of up to $75,000 and $1,200 for couples with income up to $150,000. Those with children get an extra $300 per child. Rebates gradually phase out for higher earners.
David A. Wyss, chief economist for Standard & Poor's, favors rebates. But he admits if he were advising an individual, he would suggest using the money to pay off credit cards.
"If I'm giving advice to the country, you need someone to go out and spend money, and eat more meals out and stop cooking yourself," he says.
Wyss is not afraid that advice to save or invest the rebate will derail the economy.
"I'm not concerned about people listening to rational advice and not spending," he says. "For most people, if a check shows up in their mailbox, it gets spent really quickly."
Not every economist is a fan of the rebate.
"It's a bad idea," says David Resler, chief economist with Nomura Securities. He says the impact of the 2001 rebates on the economy was exaggerated. The new stimulus package, which includes the rebates, will add about $150 billion to the country's debt. "Which means now or later, interest rates will be higher than they would have otherwise been," he says.
Economists, of course, are looking at the big picture. But for financial advisers dealing with clients financially struggling - or for this financial writer who listens to readers' money troubles - it's hard to support a spending spree.
"What drives me most mad about this tax rebate is that it's all about more consumerism," says Joanna Smith-Ramani, director of the Baltimore CASH Campaign. "They are saying 'Buy, buy, buy.' "
The CASH Campaign provides tax preparation and financial counseling for the type of workers the rebates are targeting. The group encourages clients to use tax refunds to catch up on bills and salt away what's left in a savings bond, savings account or certificate of deposit. Just the opposite of what the government is encouraging now.
Silver Spring financial planner Peg Downey says the call to spend infuriates her. "It reinforces bad behavior," she says. "You're training people to overspend." She recommends using the rebate to start an emergency fund that you can tap - instead of credit cards - for unexpected expenses.
"If I could wave a magic wand, people would spend it on job training," says Rockville financial planner Christopher Brown. That in turn could lead to a higher-paying job, which in the long run is better for the worker and the economy, he says.
There is no shortage of ideas how you can use $300 or $1,200 to improve your finances. You know best where a small windfall can do the most good. So when that check comes in, use it to put your finances in better shape.
Questions? Comments? Or to share a tip with readers, contact Eileen Ambrose at 410-332-6984 or by e-mail at firstname.lastname@example.org