Most Americans earmark tax refunds for savings, debt

Americans will get back some $330 billion in tax refunds this year, and more than half of that is earmarked for savings accounts or paying down debt. That’s the highest percentage since 2007.
Some 66% of individual taxpayers will get a refund check in 2016. According to an annual survey released by the National Retail Federation on Thursday, about 50% of them will plow it into savings, while 35% will also use it to pay down debt. It’s perhaps a sign of self-discipline that Americans want to shore up their finances, but it’s also a bad sign for consumer sentiment, and by extension the U.S. economy, which relies on you spending as much of your money as possible.

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NRF President Matthew Shay put a positive spin on the numbers by saying “money saved is spending potential down the road.” And in fact, it’s not all delayed gratification for retailers: A good chunk of refunds will still pay for vacations (11.4%) and cars and TVs (9.2%), according to the survey of more than 7,000 people.

Rather than socking cash away for pennies of interest, a little splurge may actually be the responsible thing to do — at least from a psychological standpoint. Personal finance experts suggest people spend a little money now so they don’t feel deprived (and as a result, end up binge-spending later). Look at it in terms of dieting: Starving yourself on a crash diet can lead to a suddenly empty tub of ice cream.

Millennials, currently the favorite of consumer studies, come in for special attention by the NRF. More than 57% of people between the ages of 18 and 24 told the group’s pollsters they plan to save their refunds. That number ratchets down to 52% for taxpayers between 25 and 34, for whom paying down debt is almost as big a priority: Some 45% of them plan to use their tax windfall to pay off creditors.

Not to be outdone, a survey by website NerdWallet found that millennials also have ambitious savings plans. While 41% of those polled said they saved or invested their refund last year, 54% expect to do so this year. Before they get that refund, though, they’ll be stressing out. Eighty percent of millennials fear doing their taxes, with 22% worried about making a mistake, 17% concerned with not getting the biggest possible refund, and 13% fearful of paying too much.
In the ”some things do improve with age” category, only 60% of taxpayers 55 and older worry about preparing their taxes.
The NerdWallet survey wasn’t all about financial responsibility. Thirty-four percent of taxpayers surveyed said they want to spend their refund on a vacation or home improvement, or splurge. Another survey showed that, this year, Americans really want to get away from it all: The likelihood of booking vacations with refund money was far greater than spending on new TVs or gaming systems, according to the website ConsumerAffairs. It found more than 80% of those surveyed cited a desire to spend on a trip, compared with 19% for a TV or gaming system.
It also seems the affinity some younger taxpayers have for all things vintage may extend to how they file their taxes. The NRF survey found 67% of Americans plan to file online — the highest percentage since 2007. But NerdWallet’s survey shows that many millennials aren’t among them: Some 17% of taxpayers between the ages of 18 and 34 plan to file paper forms, while only 8% of taxpayers 35 and older plan to do it the old-fashioned way.
That makes sense, in a way, said NerdWallet personal finance expert Liz Weston, in part because the simpler financial lives of millennials mean they have less need for complicated returns — and less cash to pay for a tax preparer.

Related Topics: Taxes