The EBRI reports that only half of workers say they could definitely come up with $2,000 if an unexpected need arose within the next month. Financial planners say a rule of thumb is to have six months of expenses covered by an emergency fund.
College loans: Not the best use of refunds. Many recent graduates struggling with college debt will have the urge to pay the loans off more quickly. It's the fastest-growing debt category and, at about $1 trillion, it surpasses credit-card indebtedness. Still, it's probably not the best use of a refund, Batchelder says. As burdensome as student loans are for recent graduates, they have relatively low interest rates, which puts them further down the priority list.
The urge to save and cut debt remains strong despite the economic recovery. The National Retail Federation survey showed that 37 percent of people say they will use their refund money to pay down debt, while 44 percent will put it into savings and 29.7 percent will use it for everyday expenses. The normal pattern in economic slowdowns is for cautious consumers to hoard cash and start saving for the worst. When the economic recovery comes, people go back to their spenthrift ways. Not this time.
The "mentality from the recession" survives, said Melanie Backs, American Express spokeswoman, when the credit card giant released a survey with findings which, like the retail group's, show consumers staying conservative. Amex says only 28 percent of people expect to spend refunds on family, travel, home improvements or big-ticket items—most are aiming for savings or debt reduction. The recovery's slow pace of job growth may be one reason frugal consumers rule. The extreme decline of home prices has also had a prolonged effect on people's sense of well-being.
But Backs sees a silver lining in this year's defense-minded personal finance playbook. As things get better, "people are feeling more confident," she said. But even as the recession fades to memory, they are resisting the urge to overspend at the expense of financial security. "They learned some valuable lessons," she said.