The Coronavirus pandemic is forcing people to be more careful with money. The pandemic is having negative effects on the US economy. Many businesses are seeing their revenues fall. The stock market is very volatile. Worst of all, almost 40 million people in the US have also lost their jobs.
Due to all these problems and fears that the economy will take years to recover, people are no longer loose with their money. But since the US economy depends on consumption, the government has been giving all of its citizens a $1200 check. This is part of a stimulus package to increase spending in the country. An increase in spending will allow the economy to recover faster.
Where Are People Spending Their Stimulus Money?
Envestnet Yodlee conducted a study to determine where people were spending their stimulus money. This is because they want to judge how effective the stimulus actually is. In a slightly shocking statistic, the company found that many people are spending their money to trade on the stock market.
The company divide people according to their income levels. Each income group has stock-trading as the second or third most prominent option. However, savings and cash withdrawals are the top options for each different group. There are still some people who have not received their checks yet. Among the people who have received theirs, there was an 81% increase in spending compared to before they got their checks.
Brokerage Accounts On The Rise
The outbreak of Coronavirus is bringing many more people to the stock market. Many young people have opened new brokerage accounts during Q1 of 2020. Charles Schwab alone registered 609,000 new brokerage accounts in Q1. Robinhood saw a rise in daily trades by almost 300% in March 2020 compared to March 2019.
There are two possible reasons for this. One is that people are estimating that the market will only rise from its recent lows. This will allow them to make money from the market comeback. But it definitely seems like the stimulus checks encouraged people to speculate and invest money into stocks.
Are Stimulus Checks Effective?
Based on the data, it seems that stimulus checks are effective to a certain extent. There has been an overall rise in spending. The increased expenditure in the stock market will provide companies with the necessary capital as well as push the market back to a stable state. Some analysts have suggested another round of stimulus checks and it might be a good option for further recovery of the US economy.