(Bloomberg) — 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 percent of individual taxpayers will get a refund check in 2016. According to a National Retail Federation’s annual survey released Thursday, about 50 percent of them will plow it into savings while 35 percent will also use it to pay down debt.
While it’s perhaps a sign of self-discipline that Americans want to shore up their finances, it’s a bad sign for consumer sentiment, and by extension the U.S. economy, which relies on them spending as much of their money as possible.
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 percent) and cars and TVs (9.2 percent), 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 it at 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 percent 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 percent for taxpayers between 25 and 34, for whom paying down debt is almost as big a priority: Some 45 percent of them plan to use their tax windfall to pay off creditors.
Not to be outdone, a survey by website NerdWallet found millennials also have ambitious savings plans. While 41 percent of those polled said they saved or invested their refund last year, 54 percent 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 percent worried about making a mistake, 17 percent concerned with not getting the biggest possible refund, and 13 percent fearful of paying too much.