Since the early days of COVID, the United States Census Bureau amped up its wide range of analytic tools. The mission of The Household Pulse Survey is to “deploy quickly and efficiently, collecting data on a range of ways in which people’s lives have been impacted by the pandemic. Data will be disseminated in near real-time to inform federal and state response and recovery planning.”
A recently published table on Child Tax Credit Spending shows an interesting trend. One of the findings was that a large number of households used their tax credit checks to pay down their debt. State level data is available at the Census site, but in today’s read, we focus on U.S. totals.
Fox Business crunched the numbers and found that 77.4% of child tax credits were spent or used to pay consumer debt, and only 22.6% of the dollars were put into savings accounts. Both numbers were at record levels in October 2021; spending was at a peak and savings was in a trough.
The official Internal Revenue Service requirements for the “Advance Child Tax Credit Payments in 2021” was:
For each of your qualifying children aged 5 or younger, generally you will receive $300. That is determined by dividing $3,600 in half, which is $1,800. Six monthly payments of $300 will provide you with $1,800.
For each of your qualifying children ages 6 to 17, generally you will receive $250. That is determined by dividing $3,000 in half, which is $1,500. Six monthly payments of $250 will provide you with $1,500.
According to a CNBC report, 36 million of 130 million households qualified for payments. And, while the politics of the Build Back Better plan is still in play, it is unclear how the program will change in the current month of January.
For now, credit managers should be thankful, and so should consumers. For credit managers, this vulnerable consumer segment received help to reduce their balances in 2021. For consumers, they reduced their revolving debt, and increased their open-to-buy limits at their credit card issuers. And the consumers improved their FICO scores with steady payments and a lower line utilization rate.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group