Americans are likely to continue to pay off debt, cover their “four walls” — or immediate expenses — and even do some post-holiday spending with the stimulus checks already in their bank accounts or coming soon through the federal government, financial and consumer-spending experts say.
Legislation signed Dec. 27 will provide one-time $600 stimulus checks to individuals making up to $75,000 a year and extends $300 weekly checks for the unemployed for almost three months. The new aid is particularly important to low-income families and the unemployed, who have faced challenges paying day-to-day bills in recent months.
Consumers also are likely to be feeling good about the stock market, which is largely recovered from its initial drop at the beginning of the pandemic, as well as home values, low mortgage rates and refinancing on homes, which continued to grow at a steady clip through 2020, according to home sales and real estate observers locally and nationally.
“What makes 2021 different? Well, you can use this opportunity of staying at home to make positive changes to your financial habits, especially given that travel is restricted or at best dangerous for your health,” said Carma Peters, President and CEO of Michigan Legacy Credit Union in Pontiac. “Stay home this year, make it a year of change to change your financial future by focusing on your debt. When you do that statistically you will also reduce stress and health issues related to financial stress.
“Keeping track of every penny you spend is important for you to see where you spend and where you could make changes to change your financial situation and focus on paying off that debt,” said Peters, and having a stimulus payment will allow for some debt payment to happen earlier than expected as well as some responsible spending.
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Even though full recovery has yet to come, the economy has made considerable progress. Retail sales for the first 11 months of 2020 (excluding automobile dealers, gasoline stations and restaurants) were up 6.6 percent over the same period in 2019 and November’s year-over-year increase was 8.8 percent.
This put the 2020 holiday season on track to meet the National Retail Federation’s forecast of between 3.6 percent and 5.2 percent growth, the report said. Results for the full holiday season will be known when the Census Bureau releases December’s numbers Jan. 15.
Long-term recovery
Economic challenges brought on by the coronavirus pandemic will continue in 2021, but stimulus legislation signed into law just after Christmas will help maintain and accelerate the nation’s ongoing recovery, National Retail Federation Chief Economist Jack Kleinhenz said.
“As we closed out 2020, it was an end to a whirlwind year whose challenging economic environment will almost certainly continue in 2021,” Kleinhenz said in a NRF statement released Monday. “The coming year might be just as eventful as the economic recovery faces many uncertainties. Recoveries do not proceed in a straight line and the prospects for volatility over the next few months are high. Nonetheless, just like the old Timex watch commercials, the economy takes a licking but keeps on ticking.
“We expect retail sales spending to see a boost from the new round of stimulus,” Kleinhenz added. “Consumers responded quickly to last spring’s stimulus checks, and distribution of the new checks will come at a critical time that will help carry 2020’s momentum into 2021.”
Kleinhenz’s remarks came in the January issue of NRF’s Monthly Economic Review, which said economic activity will likely pick up after the winter months and into mid-year as COVID-19 vaccines allow more activities to resume. The availability of a vaccine during the first quarter – historically a soft spot in the economy every year even without a pandemic – “couldn’t be better,” he said.
Looking forward
According to financial expert Chris Manske, many Americans woke up with a second stimulus check hitting their bank accounts while still wondering if they will be able to make ends meet from the financial hole they are in with lost wages and businesses in financial ruin.
Americans are still also digging themselves out of the hole they created for themselves with holiday spending, which makes the beginning of 2021 tough on finances, according to Manske. Not to mention, more than 1 million Americans are still waiting for unemployment aid to start the year.
Manske is a former United States Army captain, author of “The Prepared Investor” and owner of one of the largest financial advisor firms in Houston, managing half-a-billion dollars for individuals and institutions all over the world.
“Our national debt requires the president’s serious attention and the public must have the fortitude to live with the necessary changes,” Manske said. “Two basic steps along the lines of reducing the national debt would be increases in tax revenue and decreases in government spending. The path of more taxes and less benefits is a difficult one to travel, and if (President Elect Joe) Biden cannot help us walk it, we will be that much closer to major inflation as the Fed will need to print money to cover the ballooning interest payments. Inflation is a serious enemy to those doing retirement planning because their dollars won’t be able to buy what they expect.”
