Americans Plan To Spend Their Tax Refunds.

More than half of all Americans (59%) expecting tax refunds this year plan to spend them on everyday purchases or to pay bills, according to the Cambridge Consumer Credit Index.

Of those surveyed, 27% plan to save their refunds in a bank account, while only 4% will invest the money in stocks, bonds or mutual funds. Two thirds of all American taxpayers (66%) are expecting to receive tax refunds this year. In April 2002, 69% received refunds and 62% spent the money on everyday bills, 23% saved it and 5% invested in stocks and bonds.

On the other side of the ledger, 21% of Americans will owe the Internal Revenue Service additional money when they file their tax returns. Of these taxpayers who will have to pay, 82% say they will get the money from their savings or checking accounts. 4% say they will come up with the money by taking out loans from banks, 3% plan to borrow the money from friends and family, 2% plan to liquidate stocks and bonds, and 1% will charge their taxes bill to their credit card and 8% will pay in other ways. In April 2002, 21% had to pay taxes by April 15, 81% paid the bill from their checking or savings account, 1% borrowed the money from a bank, 5% borrowed the money from friends and relatives, 7% liquidated securities, 3% charged the bill to their credit cards and 3% paid in other ways.

According to the Index, the percentage of Americans who feel they will not owe any taxes to the IRS this year is 13%. Up by three percentage points from last year’s index.

“The results of Cambridge Consumer Credit Index’s April wildcard question indicate the economy should get a boost as most taxpayers spend their tax refunds. However, consumers are still cautious, as shown by the four percentage point increase in the number of Americans putting their refunds into savings accounts this year compared to 2002,” says Jordan Goodman, spokesperson for the Index.

These findings are the result of monthly nationwide telephone poll of 1000+ adults conducted by ICR/International Communications Research in the past week, sponsored by The Debt Relief Clearinghouse.

“In today’s uncertain economy, we encourage all consumers to use their tax rebates sensibly,” said Chris Viale, general manager of Cambridge Credit. “Consumers should take this opportunity to solidify their financial well-being for the future, which may include eliminating debt and increasing their savings, before running out to spend their rebate checks.”

The overall Cambridge Consumer Credit Index dropped by one point from March to 59. An 8-point drop in credit use in the past month was mostly offset by a 2-point rise in the next month and another 2 point rise in the next six months expectation of credit use. The “Reality Gap,” which is the difference between the amount of debt consumers say they will pay off in the next month compared to the amount of debt they actually pay off a month later, fell from 12 points to 6 percentage points. A month ago, 79% planned to pay off debt, while a month later only 73% actually did so.

The Cambridge Consumer Credit Index is a forward looking economic indicator gauging consumer spending and debt. It is released on the fifth business day of every month to coincide with the Federal Reserve Board’s G19 release of consumer credit outstanding data.

In conjunction with the Index, the Cambridge Credit Counseling Corp. is releasing its monthly survey of people who have called in for credit counseling services over the past month. Cambridge representatives ask callers for the primary reason that they found it necessary to get help with their debts now. Of the 1210 people who answered, this was the order of their responses:

1. I am frustrated with high bank rates and fees (30.2%)

2. My income has been reduced from a lower salary, less overtime or layoff (26.7%)

3. I got into too much debt by overspending (13.2%)

4. I want to improve my ability to achieve future financial goals like buying a house or saving for retirement (11.7%)

5. My lack of financial education caused me to take on too much debt (6.7%)

6. Large medical expenses forced me to take on huge debts (5.3%)

7. Other reasons (4.0%)

8. My recent divorce or widowhood forced me to take on large debts (2.2%)

For more information on the survey see www.cambridgeconsumerindex.com/camsurveyasp

The Cambridge Consumer Credit Index number is a composite of these three questions:

1. In the past month, have you taken on more debt or paid off debt? The Index reads 54 on this question, a drop of eight points from March.

In April 27% of Americans say they have taken on more debt, with 16% taking on a little and 11% taking on a lot more debt. Conversely, 73% of Americans have paid off debt, with 50% paying off a little and 23% paying off a lot. The reading is lower than March, when 31% of consumers had taken on more debt while 69% had paid off debt.

2. In the next month, do you anticipate taking on more debt or paying off debt?

The Index reads 44 on this question, an increase of 2 points from March. In April, 22% plan to take on more debt, with 6% planning to take on a lot and 16% planning to take on a little debt. Conversely, 78% plan to pay off debt, with 59% paying off a little and 19% paying off a lot. In March 21% planned to take on debt and 79% planned to pay off debt, indicating that intentions to take on debt are rising slightly.

3. In the next six months, do you expect to take on debt because you are thinking of making a major purchase such as a car, education, appliance, medical procedure, furniture or carpeting?

The Index reads 78 on this question, an increase of two points from March.

In April, 39% of Americans plan to take on more debt to make such purchases, with 14% taking on a lot of debt and 25% taking on a little more debt. In contrast, 61% of Americans plan to pay off debt in the next six months, with 45% expecting to pay off a little and 16% expecting to pay off a lot. In March, 38% of Americans planned to take on more debt, while 62% planned to pay off debt. Intentions to make major purchases over the next six months have risen by 4 percentage points.

“While consumers are being very restrained about their spending on credit now, the Cambridge Consumer Credit Index indicates that attitudes about using credit in the future are improving a bit, as both the next month and next six month indicators showed slight increases,” says Jordan Goodman, spokesperson for the Index.

The Index survey is conducted by ICR (International Communications Research) of Media, Pennsylvania over five days in the week before the Index is released. Over 1000 households are polled based on random-digit dialing, with all demographic and regional groups in America fairly represented. The Index has a margin of error of plus or minus three percentage points.

For more information at http://www.cambridgeconsumerindex.com