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Most Americans will use their tax refund to bolster their finances amid economic uncertainty, volatile stock markets and persistent inflation.
More than a third of Americans are saving their tax refund this season and 44% have earmarked the funds to pay off debt or bills, according to the CNBC Your Money Financial Confidence Surveyconducted in partnership with Momentive.
Those percentages were even higher for younger respondents — closer to half for Americans ages 18 to 34 — according to the March survey of more than 4,300 consumers.
A recent Bankrate investigation also found that tax refunds are important to the financial situation of most Americans, and that paying down debt and increasing savings are top priorities this year, which is similar to previous findings .
“People tend to use this money in very practical ways,” said Ted Rossman, senior industry analyst at Bankrate. “It’s something we see year after year.”
As of March 31, the IRS had issued nearly 63 million refunds, with an average payout of $2,910, down from $3,226 at the same time of the filing season last year, the agency reported Friday.
Reimbursements are down 10% at a time when other costs are increasing significantly.
Senior Industry Analyst at Bankrate
“Reimbursements are down 10% at a time when other costs are increasing significantly,” Rossman said. Although inflation was on a downward trend, the annual rate was still 6% in February, including volatility in food and energy prices.
“This is perhaps the biggest windfall a typical household receives all year,” Rossman said. “So it’s unfortunate that the amount is going down at a time when other things are more expensive.”
Some 45% of Americans expect to receive or have already received a tax refund this season, according to the CNBC survey.
How to choose between saving and paying off debt
Paying off high-interest debt, such as a credit card balance, is “always a prudent option” for your tax refund, said Ken Tumin, founder and editor of DepositAccounts.com, a website that tracks the most competitive savings options.
“The average credit card rate is just over 20% these days, which is the highest since we started measuring nearly 40 years ago,” Rossman said. “So if you have credit card debt, putting some of that repayment money on that debt is a really good choice.”
Of course, emergency savings are also important, especially in a shaky economy, Tumin said, noting that now is a good time to consider a high-yield online savings account, as rates are at their “highest levels in more than a decade”.
Alternatively, you can choose to split your repayment between paying off debt and padding your emergency fund, depending on your situation, Rossman added.