If you’re planning to cash in on your tax return this year, don’t tell anyone — or you might feel a little guilty.
Only 21 percent of Americans are thinking about spending their Tax Refunds this year on everyday expenses, according to the National Retail Federation. That’s because 48 percent of us plan to stash our returns away in some sort of savings. Another 35 percent plan to pay down debt.
“Financial security continues to be top-of-mind for all Americans, and consumers are hanging on to their tax Refunds tighter than ever,” says NRF president and CEO Matthew Shay. “Consumers are leveraging their tax returns to build up their savings, but that’s good news in the long run because money saved today is money that can be spent down the road, particularly during the back-to-school and holiday seasons later this year.”
Only two-thirds of Americans are expecting tax refunds this year, and of that, the NRF says those who will spend that cash will be at record lows. Of those who are spending:
- 21 percent will spend on everyday expenses
- 10.7 percent will put money toward vacations
- 8.7 percent will make big purchases, like a new TV, a car, or furniture
- 7.6 percent will make a splurge purchase, like going to a salon or spa, dining out, or new clothes
While 48 percent of Americans plan to save — a solid money move that has been increasing over the years —35.5 percent want to pay down debt, which is technically spending, but it’s spending of a different kind. A smarter kind.
Refunds aren’t a remedy
The good news is that more than one-third of Americans who are getting tax refunds are going to put some or all of it toward paying down debt. The bad news is that our tax refunds aren’t getting us out of debt.
As families make major gains toward paying off medical bills, major auto repairs, or older tax payments, those families aren’t recovering from those big expense payoffs, even a year after they’ve done so.
Using the refunds to pay off debt has been going up over the years, which is good, but Americans need to be mindful of how their current spending and budgets could affect their debt payments later.
Stashing away for emergencies like medical bills or car problems means you’re less inclined to use your tax refund for it later. I know, we’re not ready for emergencies. Most of us can’t handle a crisis like, say, losing our jobs. Even with a bit of money saved, we wouldn’t survive if we didn’t have our income for roughly three months.
If you don’t have the cash on hand to tide you over, you’re probably thinking about how to pay off debt while you’re dealing with the income loss. Many would turn to credit cards and some would cash in their retirement savings, if they have it.
Make sure you aren’t relying too heavily on your tax refund for major debt payments. While helpful, they could actually hurt you in the long run.