Quick Summary

This data analysis looked at the ways families spent their tax returns and the effects it had on their spending habits. The majority of families receive a refund equivalent to six and a half weeks of pay. Spending habits for families who received a refund increase sharply, and then continue at a rate of 6.7% higher–even six months after receiving the refund with an 11% increase in account balances. For the smaller group of families who make a tax payment (about two and a half weeks of pay), there does not seem to be a change in habits.

Key Insights

The report summarized the data analysis of expenditures, inflows, and savings from Chase customers aged 25-64, with checking accounts between 2015-2017. This report resulted in six major findings. 

  1. Four-fifths of the families that received tax refunds have a lower average income and little to no savings.
  2. Tax refunds amounted to almost six weeks of their take-home pay deposits; in contrast, the average tax payment, made by families, was equivalent to two and half weeks of income.
  3. Families receiving a refund have a spike in spending immediately following, with an average of 28% of the refund amount still available six months later.
  4. After receiving a tax refund, family spending increased by 101 % for durable goods, 85% for credit cards, and 164% for cash withdrawals.
  5. Families for which the refund substantially increased their cash flow, exhibited the following increases: durable goods spending 203%, credit card payments 212%, and
  6.  cash withdrawals 267%. 
  7. Families who make a tax payment, immediately return to their previous spending patterns.

My A-HA Moment

I believe that for my clients who rely on their tax refunds, helping them plan where those dollars will go ahead of time may be beneficial. Additionally, it could be worth examining spending changes before and after receiving a refund to provide clients with a better picture of their current financial situations, spending patterns, and financial behaviors. 

Continuing the Discussion:

As we continue to recover from COVID’s financial impact, and this being the first tax year, without many of the COVID stimulus payments and tax credits, I am interested in hearing how you are working with your clients to help them adjust to a potentially smaller tax refund. 

  • To what extent have you changed your client conversations around budgeting and emergency funds?
  • Do you address opportunities to adjust tax withholding amounts allowing clients to save the difference instead of waiting for a refund?
  • What are some of the financial behaviors that need to be addressed? When is it better for the client to get a refund instead of owing a tax that they may not be able to pay? 
  • Is the conversation different for clients who are part of the gig economy?

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