Many income tax refund recipients would probably like to spend them on something fun.
But bills may come first.
A recent national survey conducted for financial services firm Edward Jones showed 52 percent of Americans will spend their annual tax refunds, which average about $3,200, on necessities such as loan payments, credit card debt and household bills.
Nevada fit the national profile shown in the survey. Thirty percent of polled Nevadans said they plan to save the money, 8 percent said they would invest it and 8 percent said they’d spend it on such items as clothes, entertainment and restaurants. Two percent said they didn’t know what they’d do with the money.
“What I’m seeing from my clients who are still working is they’re really trying to put themselves in a better financial position of paying off their debts or increasing their savings rather than going out and buying a TV,” said Wendell Whitman, an Edward Jones financial adviser. “Everybody is still recovering from 2008-2009, and I’m still seeing people trying to rebuild their own balance sheets.
“Before the recession, when things were good, there was a lot more spending going on and little less focus on savings from the working clients.”
The Edward Jones survey found those ages 55 to 64 were likeliest to save their refund — 43 percent, said Scott Thoma, an investment strategist for the company. Twenty-five percent of those 45 to 54 said they’d save their refunds.
The youngest group, 18- to 34-year-olds had the highest percentage of respondents likely to spend their refunds on fun items at 12 percent, Thoma said. By contrast, 5 percent of those 65 and older said they’d do the same, he said.
“As the economy continues its recovery, it’s no surprise many Americans are also focused on their own recovery, paying down debt and improving their current situation,” Thoma said. “The interesting conclusion out of the study wasn’t so much how much they were going to save versus invest, but … if you look at the ones who were going to splurge and do something fun most of the age categories were in single digit (percentages).”
Income determined the willingness to splurge more than any other factor, with 13 percent of those making $100,000 or more willing to do so. All other income groups were in the single-digit percentages.
PAYING THE BILLS
Cortland Johnson, a 22-year-old Las Vegas laborer, said it would be nice to spend the $800 refund he expects this year on something fun, but that hasn’t happened in the past and isn’t likely this year, either.
“I just use it for the bills —– to pay for gas, electric,” Johnson said. “The extra money helps. I don’t have enough to invest it.”
For other Las Vegans, such as 54-year-old Alvin Eston, the annual tax refund is a way to secure future income through his auto detailing business.
Eston said he’s received his $2,800 refund and used it to buy a $3,400 water recovery system required under health codes.
Eston said he’s had a mobile auto detailing business, Alvin’s Fleet Service &Detailing, but the water recovery system to keep dirty water out of Lake Mead will let him to establish a permanent location in a retail center.
“It allows me to get more work,” Eston said. “I’ve used every dime of it on my business. It’s better to be in one place than not have to burn gas. The $3,000 I put into this will make $5,000 to $6,000 over that amount.”
The survey showed that households with children were the likeliest to spend their refunds on everyday expenses, more so if the children were older, Thoma said. Childless respondents were the likeliest, at 10 percent, to spend their refunds on something fun, he said. Only 1 percent of respondents with children 13 to 17 said they would do that.
Thoma said this is the survey’s first year, so there’s no data showing what people did with their refunds. But at least they’re saying the right thing.
“Those paying for credit cards and loans is a pretty good use of the refund, quite honestly,” Thoma said. “It’s difficult to gain progress from a financial standpoint if you’re having a high interest rate debt.”
That’s the strategy of Henderson resident Greg Gonzalez, a 27-year-old shop manager in the residential construction business. Gonzalez, who said he and his wife bought a home this year, will get a refund of about $600, and he plans to make extra payments on his wife’s student loan.
“That’s the last thing we owe on besides the house,” Gonzalez said. “We want to get this knocked out. We eventually want to travel and do some different things later in life, and we want to take care of our overhead so we don’t have anything else holding us back later on.”
VALUE OF INVESTING
Whitman said compared with the past, a few taxpayers are looking to invest their money because they have already built up savings. Older clients tend to have less debt than younger ones and are more willing to invest, he said.
Whitman said investing even a small amount from a refund is beneficial. Doing so can help start an investing habit that will better position them for retirement, he said. There are plenty of high-quality investments of stocks or mutual funds with long-term track records that would be a good place to start
Thoma said he encourages clients who don’t plan to use refunds on existing expenses to consider long-term savings, such as a 401(k), individual retirement account IRA or 529 college savings plan.
Before investing, people should have at least three- to six-months of income in an emergency fund, Thoma said. Beyond that, setting aside additional money without long-term investment goals is a poor use of the money, he said.
Household income had the greatest influence on how to use the refund, Thoma said. Those earning less than $50,000 a year were the likeliest, at 61 percent, to spend the money on necessary expenses, he said. By contrast, 37 percent of those making $100,000 or more said they’d spend their refunds on necessities.
The group making $50,000 to $75,000 was likeliest to invest the refunds, at 14 percent, Thoma said. Of those making $100,000 or more, 9 percent said they would invest the money, he said.
Thoma said it’s easy for the young to prefer to spend their money on something fun because they see retirement as so far into the future. But he said that $3,000 invested now would be worth more than $20,000 in 30 years.
“Every purchase you make today has long-term implications,” Thoma said. “It’s not just how much it costs today but how much you can grow it in the future if you didn’t spend a dime on that.”
ORC International’s Caravan Omnibus Services did the Edward Jones survey, based on 1,018 landline and cellphone interviews of U.S. adults conducted Jan. 30 to Feb. 2. The margin of error was plus or minus 3 percent.