These days, millions of Americans are still feeling the financial effects of the recent economic downturn, and as such may need more money coming in. To that end, a large number of consumers plan to put their tax returns toward immediate needs this year.
About 85 percent of consumers say they expect to receive a tax refund this year, and 35 percent say they’ll spend all or part of those funds more or less right away, according to the latest annual Taxes and Savings Survey from Capital One Bank. Much of this may be because 42 percent of those polled think they’ll see less take-home pay this year as a result of the recent payroll tax increase, and at the same time, more than half of men and one third of women say they won’t change their spending habits.
“At a time when people are seeing smaller paychecks, now more than ever they should take a step back, evaluate their financial goals and consider saving their tax refund,” said Mickey Konson, Managing Vice President for Retail Banking at Capital One Bank. “People tend to think of their tax refund as free money or an annual bonus, which makes it very tempting to spend it right away, but remember, that refund is your own money — without added interest. Tax season is a great time to plan ahead, with an eye toward your financial goals.”
When it comes to how they’ll appropriate the extra money they receive, 22 percent say they’ll use it to help cover their outstanding debts, while only one in every six or so will put that money into savings, and 4 percent will invest it, the report said. In addition, 30 percent will spend their refunds on expenses and necessities. However, the remainder will use it on extra expenses. Nearly one quarter say that money will go toward a vacation, 16 percent will use it on clothing and accessories or other major purchases, and 15 percent say they’ll buy electronic devices including TVs, smartphones or tablet computers.
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Putting any additional funds that may come in over the course of the year toward paying down debts is perhaps advisable because it may allow borrowers to reduce their financial burdens going forward and put themselves in a better position as it relates to their credit scores.