Rebate Checks Could Spark Urge to Splurge

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So, is it time to go shopping now? Congress may think so. But I don't.

Rebate checks from the federal government will hit the mailboxes of more than 130 million households this spring, thanks to a $168 billion economic stimulus package passed by Congress and signed by President Bush.

Buying our way out of the present economic slump could mean squandering an opportunity to bolster family finances -- even by a small amount -- at a time when many Americans are surveying the damage from their earlier spending blitz.

Last week's bill, intended to jump-start the economy, includes rebate checks of $600 for individuals with adjusted gross income up to $75,000 and $1,200 for married couples filing jointly who earn up to $150,000. Most taxpayers with higher incomes will still get some cash -- but the amount, in essence, shrinks by $50 for every $1,000 earned beyond the limit (the formula ultimately excludes the nation's highest wage earners).

Rebates of $300 for individuals and $600 for married couples filing jointly are in store for people who don't pay taxes, but whose earned income is at least $3,000. Recipients will also receive a $300 credit for each child.

Confused?

Then restrain yourself from spending until after filing your 2007 tax return, which will determine your eligibility.

Whatever the size of the rebate checks, I'm not sold on the notion that buying a television at Sears is somehow patriotic.

Neither are many Americans.

Only 21% of respondents in a recent survey conducted by CCH, a tax-information provider, said they would actually spend their rebates. Most said they'd pay down debt (47%), while about a third would save the money.

Now, maybe I'm not an economist or a politician, armed with statistics about why spending extra cash may somehow be "good."

So what?

Like many of you, however, I live in the real world, where parenting three kids has enhanced my skills in the common sense department. And there's one presumption underlying this stimulus package doesn't make sense to me: Spending is supposed to get us out of this mess. But haven't we spent enough already?

Excessive consumer spending precipitated the subprime mortgage crisis that lead to billions in writedowns by Merrill Lynch, Morgan Stanley and UBS.

It all helped sink the nation's economy, thanks to a pattern of aggressive lenders hawking cheap debt to overzealous consumers who took on more than they could ultimately afford. Rising oil prices and the declining housing market continue to strain household budgets that were in the red long before the economy went south.

Consider revolving credit card debt: It totaled $943.5 billion last year, up from $770.5 billion in 2003 -- a 22% increase, according to the Federal Reserve.

So let's slap the national seal of approval on even more consumer spending? I don't think so.


Whatever spare change I reap from this deal in 2008 will benefit my family's long-term financial health. When my son's college tuition rolls around in another 6 1/2 years, or I become a 70-year-old retiree, there won't be any cash for discretionary purchases unless I bolster savings during my 40s.

Not surprisingly, many financial planners agree.

"It's a good idea for the government -- but it's not a good for the people -- especially if they're sitting with other financial problems," says Ira Marks, a Lawrenceville, N.J.-based fee-only financial planner. He's concerned about the possibility of overspending.

"Someone might wind up getting a $1,000 check -- and spend $1,500 on a big-ticket item. Then they're in worse shape," he says.

Marks recommends using the windfall to pay down high-interest credit card debt. Couples who aren't saddled with debt and earning less than $150,000 annually should consider saving the cash in a Roth IRA, he says.

Cicily Maton, founder of Aequus Wealth Management Resources in Chicago, cautions that splurging on certain items -- such as a puppy -- often means expending additional funds over time for upkeep. She suggests that eligible taxpayers simply put their rebates aside to cover a future unanticipated expense.

I believe in delayed gratification -- bearing through short-term misery to attain benefits down the road.

Many taxpayers and financial experts seem to share my philosophy -- at least when it comes to this year's rebates.

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