Stimulus Checks Help Cover Rent but Little Else in Virus-Struck America

(CN) — On a morning that census numbers showed an unprecedented drop in retail, the economic ravages of coronavirus found some lift Wednesday with the arrival of stimulus checks in U.S. bank accounts.

“Every penny is going toward one month of rent,” said Amy Cho, an at-home preschool provider in San Diego whose paychecks came to a halt last month when Covid-19 controls forced her to close her doors.

School may be closed for the coronavirus pandemic, but San Diego preschool operator Amy Cho continues to entertain students in her Amy’s Daisies program with YouTube videos and a new book.

Just a few months ago, Cho and her husband, a videographer, had moved into a larger space to grow the preschool. She said their landlord has been understanding, but the crisis has made money tight.

“Luckily for my husband and me, we have some savings to live off, but I know there’s other people out there that don’t have a savings,” Cho said.

Until school resumes, the London-born Cho has started a YouTube channel to entertain her class remotely and just last week published a children’s book, “Frog & Bee.” 

An estimated 80 million taxpayers received checks this week as part of the $2.2 trillion stimulus package passed by Congress. Taxpayers making less than $75,000 a year are entitled to a $1,200 stimulus check — $2,400 for married couples netting less than $150,000  — but parents will also get $500 for each child under 17.

Stephanie Hinson is among those still waiting for a stimulus check, but the 36-year-old hopes to buy a car once it does come in.

“That will help me get back on my feet,” said Hinson, who lives in a rural part of North Carolina where the lack of an advanced public transit system makes it hard to get around.

In addition to a check for herself, Hinson is also expecting $500 for her 17-month-old daughter, Elizabeth. She said the money will help her gather supplies to keep the toddler active and engaged at a time when the risk of Covid-19 keeps them homebound.

“Since I was previously unemployed, I am able to adapt to this situation, but she is getting bored,” Hinson said. “With playgrounds and public spaces shut down, I want to make sure that I am continuing to foster her learning and imagination while we are stuck at home.”

Hinson expressed gratitude for the rent assistance she receives through the federal Section 8 program and for having received extra benefits this month from SNAP, short for the Supplemental Nutrition Assistance Program. 

She is worried for what happens, though, once the country tries to pick up the pieces from the pandemic.

“Right now, landlords can’t evict people,” she said. “But when this is over, I am worried that some people will not be able to make up the missed bills and end up in financial trouble. I hope that everyone is smart about this and chooses to spend the money on what they are supposed to.”

Charlotte Davis, an outreach coordinator for the Children’s Center of Transylvania County, has worked with Hinson and her family over the past year as part of a program that connects those in Western North Carolina who face economic barriers to education opportunities and other resources.

She said the Covid-19 crisis has put many of her clients in food services and other industries out of work.

“Most of our clients — many of whom are of a lower socioeconomic status —  are beginning to come to the end of their income tax money so the stimulus money they receive will likely be needed for bills and other household necessities,” she said. 

Davis said the individual stimulus allotments will most likely be enough to cover rent and utilities during the next billing cycle for the families she works with. But not without the help of resources such as SNAP, other federal programs and the rural community’s nonprofit organizations.

“The young lady who we are going to help with the rent tomorrow will be able to pay rent this time around if she receives the stimulus soon because her apartments are setting up plans to defer rent payments,” Davis said. 

“At this point, I do not know of any of my clients who have received a stimulus check,” Davis said on Wednesday.

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Keeping Savings in a Crisis

There’s a theory Donald Hantula talks about with his behavioral economics students at Temple University.

“Some financial decisions are more rational than others,” explained Hantula, an associate professor of psychology. Rational choice theory assumes that every person will weigh the personal cost and benefit of all their tasks to determine which possible action would have the best possible outcome.

“Probably for any individual the most rational choice to make with this stimulus check is to save it,” Hantula said, at least for people who are still employed. 

But for certain kinds of individuals — let’s call them “humans,” Hantula joked — following rational choice theory is not so easy.

Donald Hantula is a professor of psychology and expert on behavioral economics at Temple University.

“What the government is betting on is that we are going to behave like humans: that people will get a $1,200 check, and that they will need to go out and spend it,” Hantula said. “Because if everybody does what is probably the economically irrational thing for themselves, what we may end up seeing, overall, is a benefit to the economy.”

In a phone interview Wednesday, Hantula likened the stimulus check to finding a $20 bill on the sidewalk.

“You’re more likely to take that $20 and spend more than you normally do,” he explained. If you were walking to lunch to get a slice of pizza that cost $2.50, you might now go to lunch somewhere else and spend $10, he said.

“That’s really the current loop here,” Hantula continued. “You put money in people’s hands that they in a sense were not expecting.”

Most Americans last got a stimulus check from the government during the Bush administration when households grappling with the 2008 economic crisis received an average of $950.

The checks totaled around $120 billion, and research shows they did bolster spending. Households on average spent half of each check in the same quarter that it was received, according to several studies on the effectiveness of the stimulus package. Between 12% and 31% of the stimulus checks went to purchase nondurable goods, primarily cars, one study found.

In 2020, while government officials are prescribing the same fix, tracking of early spending habits show different results. 

After processing almost $1 billion in relief payments as of Monday, Prepaid Debit Card Company Netspend said its customers appear to be spending their checks on “groceries, fast food, pharmacies and gas.”

The early spending trends don’t surprise Hantula. 

“Remember in 2008 and 2009, everything was still open,” he explained. “Grocery stores are open because they’re considered essential. Gas stations are considered essential. But a lot of other discretionary spending is not. Unless you’re buying groceries or gas or drugs from the pharmacy, there’s not many other places you can spend.”

There are also more people out of work now than ever before. In the past three weeks, close to 17 million Americans have applied for unemployment, and some economists have predicted that the unemployment rate will hit 15% this month, charting higher than Great Depression figures.

Spending habits often differ between individuals who have children and those without dependents, Hantula said. Families are more likely to spend on essentials — “versus for the people who don’t have dependents, I could see more spending on things that are more of a personal luxury,” like meals from fancy restaurants or deliveries from wine or beer stores, he explained.

What’s more, spending may differ between those who get their money directly deposited and those who receive a physical check.

Direct deposits “don’t really have the same tangible feeling of this thing that comes in the mail.” 

It’s kind of like how when people use credit cards to make purchases, they’re more likely to spend more than if they were buying with cash. 

“There’s a ton of research on how credit cards are sort of frictionless transactions,” Hantula said, theorizing that people who get the physical check will spend more even if they receive the payment later. 

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Rent or Food: A Black American Tragedy

Race is another factor that shapes how stimulus checks will be spent, a fitting observation for a virus that is disproportionately affecting black Americans as a result of systemic and racial inequality in the United States.

As the Washington Post reported last week, counties where residents are predominately black see three times the rate of infection — and six times the death rate — as compared with white residential areas.

Surgeon General Jerome Adams acknowledged the connection last week, noting that black Americans are also statistically more at risk of having pre-existing conditions like heart disease, diabetes, kidney disease and obesity that make Covid-19 more serious.

This image from last week shows two women with groceries passing in front of a mural on Chicago’s Southside depicting civil rights achievements.
(AP Photo/Charles Rex Arbogast)

Black Americans are also more likely to work service-sector jobs, which tend not to be work-from-home friendly. 

According to Howard University professor Ravi Perry, many black Americans in the worst-hit areas will be forced to spend their stimulus checks on predatory lending services.

Perry said 22% of black Americans lived below the poverty threshold, which as of 2018 was only slightly above $20,000. These people will have little choice on how to spend their stimulus checks, he continued.

“Whatever the amount, it won’t be enough to cover all of their expenses with reasonable assurance and quality resources,” Perry said in an email Monday. “It’s not a choice when you’re choosing between rent and food. That’s not a choice, that’s a black American tragedy.”

Even the decision to spend an economic impact payment on groceries is a challenging decision, Perry said.

“First, if they do get a check and it is enough for food, many black neighborhoods have limited fresh food supply,” he said. “There are food deserts and many blacks don’t drive — hence blacks are at a greater risk of contracting Covid-19, because a disproportionate number of them are expected to obtain food using public transit.”

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Waiting Game

While the earliest stimulus checks are going out to those who enrolled in direct deposit when they filed a 2018 or 2019 tax return, Treasury Secretary Steven Mnuchin said physical checks could take several months to get out. The agency has also set up a web portal, which went live Wednesday, to allow people to update this information virtually.

Alex Kessler, a 25-year-old from Maryville, Tennessee, watched his bank balance online Tuesday night as a $1,200 direct deposit appeared, sparking relief, excitement and surprise.

“I am probably going to put the majority of it toward my car payment and use the rest for necessities like food and gas,” said Kessler.

Though the retail store where he works as a manager had to close because of the pandemic, Kessler said he is still getting paid as part of a temporary layoff.

“I’ve been just about as lucky as anyone could be right now, since I am still receiving pay,” he said in an interview. “The element of uncertainty, though, has been stressful for everyone. Until they had really determined what the company was going to do, I wasn’t sure if I was going to keep receiving paychecks.”

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