Nobody is saving their monthly child tax credit payments.
In mid-July, the IRS began sending eligible parents a series of six monthly advance child tax credit payments worth up to $300 per child. According to a new poll from Morning Consult, families are spending virtually all of the money rather than allocating much if any of it for savings.
"Parents living with children under 18 showed no increase in leftover income after paying household expenses in July compared with the average over the previous two months, despite the extra influx from the tax credit," the Morning Consult report states.
To a large degree, this indicates that the expanded child tax credit payments — rolled out in 2021 as part of the federal government's $1.9 trillion American Rescue Plan — are working as designed. Congress approved the funding primarily as a means to help families cover household expenses during trying times, rather than boost their savings rates.
Yet the way the child tax credit payments are being spent (and not saved) stands in stark contrast to what millions of Americans did with the stimulus checks they've been receiving over the past 15 months or so. Yes, most of that money went toward buying groceries and paying bills, but a sizeable chunk also wound up in savings accounts. Various surveys indicate that households saved somewhere between 30% to 36% of their stimulus check money.
Why are households not putting some of their child tax credit payments into their savings? The obvious answer is that they simply need the money to pay for stuff now.
When people received most of their stimulus check cash during the widespread shutdowns, the options for spending on things like restaurants and travel (or even commuting to work) were limited. This summer, Americans say they are spending an extra $700 or more per month compared to last year, with a lot of the money going to vacations, dining out and back-to-school purchases.
All of those regular household bills still have to be paid as well. As Money reported recently, many caregivers are using their child tax credit payments to for things like buying Cub Scout uniforms, paying rent and covering medical expenses.
What's more, the monthly child tax credit payments are much smaller than the money paid out in federal stimulus checks. An eligible family of four might be receiving $500 or $600 per month in child tax credit payments, compared to a lump sum of over $5,000 for a single stimulus payment. Obviously, it's much easier for families to stash away a portion of the latter.