| March 3, 2017

Research of the Week: Save Your Refund for Better Things

Record numbers of Americans plan to save their tax refund this year.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

For the past 10 years, the National Retail Federation has conducted a survey of American consumers about tax returns. NRF’s goal is to find out how consumers plan to use their tax refunds each year.

The big result

“A record low number of Americas will spend their tax returns this year while the second highest number on record will put the money into savings.”

Essentially, the survey finds that most Americans plan on squirrelling that money away for a rainy day. And those who will spend their refund this year plan on using it to pay off debt. Apparently, gone are the days that most people used their refund to splurge.

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The fascinating details

Of those surveyed, roughly 66% said they expected to receive a tax refund this year. Over half of people surveyed planned to have their filing completed by the end of February. And two thirds of people now plan to file electronically.

The uses for refunds are almost wholly focused on promoting financial stability:

  • 48% plan to put the money in savings
  • 5% will pay down debt
  • 9% will use the money to help cover everyday expenses
  • 7% will use it to take a vacation that doesn’t rely on credit cards
  • 7% will fund a major purchase, like new electronics or a car
  • 6% will splurge
  • 0% will use it for “other” purposes

What you can do

“It’s encouraging to see so many Americans plan to use their tax refund for practical purposes,” says Gary Herman, President of Consolidated Credit. “Even if you use it for a major purchase or to fund a vacation that’s not splurging. You’re avoiding the debt that you would have taken on otherwise, which means it’s a good move for your finances.”

That may seem counterintuitive, but spending your refund on something nice doesn’t necessarily mean you’re splurging. For instance, if your laptop is dying and you need a new one, that’s a necessary expense for many Americans because they use laptops for work.

“The same is true for a vacation,” Herman explains. “Vacations often seem like luxuries, but most of us really need time off and away from home to unwind. It’s hard to maintain your sanity and keep up a grueling schedule if you never take a break. So even if you use your refund on a vacation, you’re spending the money strategically.”

So what does count as splurging?

“Splurging is when you buy something you don’t need because it makes you feel good, but not because you have a clear need,” Herman says. “So in that sense the same purchase made in different situations may be splurging or it may not be. If you buy a TV because yours broke, it’s not splurging. But if you buy a new TV because it’s larger, it’s a little harder to justify that as a necessary expense.”

Finally, Herman advises debt management program participants that they can use a tax refund to make an extra payment on their program.

“There is no penalty for paying off your debt management program faster than on the assigned payment schedule,” Herman concludes. “So if you don’t have another use for your refund, call the credit counseling team to request an extra payment on your program. We’ll distribute it accordingly to your creditors and you can be out of debt that much sooner.”

To speak with a credit counselor about making an extra debt management program payment with your tax refund, call .

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