62% of College Students Plan to Save or Invest Their Stimulus – Is That Good or Bad for the Economy?

Group of Students with Backpacks Walking to School.
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A survey released in August from the National Bureau of Economic Research showed that most recipients of the first stimulus last March said they’d saved the money or paid off debts instead of spending the cash. In fact, the NBER found that only about 40% of respondents spent their stimulus check. A new poll by Generation Lab and Axios shows that even more college students are planning to hold on tight to their stimulus cash this time around.

See: If You Get a Stimulus Check, How Will You Use It? Take Our Poll
Find: Could Wall Street Get a Boost from Stimulus Checks on the Way?

The Generation Lab/Axios poll shows that 62% of college students plan on saving or investing the money. This suggests that Americans — particularly younger ones — do not yet feel the consumer confidence that was expected to inject millions of dollars back into the U.S. economy.

One reason the first stimulus payments didn’t spur more consumer spending could be the pandemic itself, the NBER suggested, noting that “few restaurants are operating at full capacity, many bars and shopping outlets are closed, recreational activities are curtailed, and travel options are limited.” In other words, there weren’t many places to spend the money. Despite the economy reopening in many parts of the country, the same might be true now, albeit to a lesser extent, driving students to want to save or invest their direct payments.

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If it persists, this type of excess saving on a large scale could significantly constrain the economic recovery.

See: Those $1,400 Stimulus Checks Are Costing Taxpayers $15,000 Per Household
Find: What Is Inflation and What Does It Mean When It Goes Up or Down?

Excess savings due to the pandemic can mean more of a pent-up demand than a recession-in-waiting. But this specific type of demand could lead to inflation post-COVID if it — and spending — were suddenly to increase.

Project Syndicate quotes UBS Group AG Chairman Axel A. Weber as stating that “expansionary fiscal and monetary policies” — policies like the stimulus, meant to kick-start the economy — could trigger higher inflation than many currently expect. This raises the possibility that stimulus payments meant to promote economic recovery could have the opposite effect.

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      About the Author

      Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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