"Most economic analyses that I've read indicate that past rebates, such as the one in 2001, are not economic
boosters," says Kay Bell, Bankrate's tax editor and author of Bankrate's Eye on
the IRS blog.
"There is scant evidence that the 2001 money meaningfully increased economic consumption or growth back then. I
don't expect the 2008 version to do so either," she adds.
In that H&R Block survey, by the way, more than 40 percent of the respondents said they wished the government would
use the $168 billion economic stimulus package for a higher purpose, such as to reduce the national debt (37 percent), improve health
care (32 percent), shore up Social Security (17 percent) or to improve education (15 percent).
I have to agree that I'd like lawmakers to address
these problems, too. But I don't object to getting
Sage advice from the experts
What does the smart money say you should do with this influx of cash?
"First, pay off debt, preferably high-interest accounts such as credit cards," advises Bell. "If you don't have debt,
call the Guinness World Records people," she quips. "Then put the money into some sort of savings vehicle. Most people are woefully
low on emergency funds, and with
the recession -- yes, we are in one -- everyone should have a financial cushion."
Bud Hebeler, author of "Getting Started in a Financially
Secure Retirement," says that people should be
encouraged to put the forthcoming government check
into 1) paying off some credit card debt; 2) their
mortgage; or 3) into retirement savings -- perhaps
in that order.
"I know this isn't what is wanted by the feds, brokers, retailers, etc., but it would be the best thing for the vast
majority of baby boomers," he adds.
The National Association of Personal
Financial Advisors suggests readers should strengthen
their financial security several ways.
|Best way to use your rebate money:
||Contributing to an IRA.
||Paying off high-interest credit card debt.
||Saving for college.
||Building a rainy-day fund.
||Paying off long-term debt such as a student loan or mortgage.
Any one of these actions will contribute
to your financial health and by extension, that
of the overall economy, because you'll be less
dependent on social support systems to get through
A look at your options
So let's take a look at what you can do with a hypothetical payout of $1,200, assuming you're married and your spouse goes along
with your decisions.
You can invest it in an IRA. And
if you get a return of 8.5 percent on average,
in 25 years it'll be worth $9,244. OK, that's
not enough to retire on, but if you use it as
seed money and continue to invest $1,200 a year
for 25 years earning that return, it'll be worth
$94,401. You have to admit, that's not chump change.
Or you can use it as a down payment
for a big-screen Sony LCD HDTV selling at $3,000
and finance the $1,800 balance. If your credit
card interest rate is 13 percent and you make
only minimum payments each month, it will take
you 13 years and three months to pay it off, and
you will have paid $1,198 in interest. That's
a total of about $4,200 for that $3,000 TV. Figure
it out for yourself.
So if you're already saving money for retirement and your other goals, plus you have a healthy rainy day fund stashed
away as well as no debt, then go ahead and splurge! You deserve it, and so does the economy.
But if you need the money for something, go ahead and use it wisely. You deserve it, and the economy will understand.
How are you planning on spending -- or saving -- your tax rebate?