A pedestrian wearing a protective mask walks past the Macy’s Inc. flagship store in the Herald Square area of New York, United States, on Tuesday, November 17, 2020.
Victor J. Blue | Bloomberg | Getty Images
On any given day, the line in front of the Gucci boutique in the mall in Short Hills, New Jersey on the second floor winds almost to the escalator.
Among the buyers waiting to enter are Gucci’s typical customers as well as new customers who just got $ 1,400 richer.
“Stimulus was definitely beneficial,” said Oliver Chen, retail analyst at Cowen & Co ..
As the economy picks up and the market hits new highs, ambitious purchases like handbags, belts, and shoes – especially those with large, recognizable logos – are picking up pace, said Chen, fueled by the recent round of direct payments approved by Congress and the president Joe Biden through the American rescue plan.
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Like the first two direct controls, this incentive is intended to be a stopgap solution for those hard hit by the coronavirus crisis.
For the most part, checks are still used this way.
About 25% of households spend this third round of payments, according to the Federal Reserve Bank of New York. In particular, 13% of the most recent stimulus check is expected to be used for groceries and other essential items and only 8% for non-essential items. The rest is used to pay off debts and savings.
But for many who have already been able to pay off debts and save more during the pandemic, “the stimulus check feels like free money,” said Andrea Woroch, consumer savings expert.
“People have this urge to go out and indulge themselves, almost as a reward for being locked up over the past year,” she said.
What Woroch calls “revenge spending” is perfectly fine as long as there is room for it in your budget (which may mean cutting something else out).
However, what generally advises against getting involved in a big ticket article. She says wealth building is a better option.
CNBC’s Jim Cramer advised that after people pay their bills, put most of their money into an S&P 500 index fund. In fact, many young private investors are already planning to spend part of their stimulus payments on stocks.
Here are some numbers that show why you should consider this too.
The S&P 500, now near a record high, has achieved an average annual return of around 14% over the past 10 years.
Let’s say you invested $ 1,400 in the S&P 500 in 2010. According to Morningstar Direct, your investment would have grown to over $ 6,200 by the end of March 2021.
Go back even further, and the rise is staggering: A $ 1,400 investment in the S&P in 1980 would now be worth more than $ 150,000, Morningstar noted.