What Would Americans Do With a Little Extra Cash?

Practical considerations, like paying off debt and buying groceries, top the list.

Americans are generally feeling more optimistic about the economy and their own financial situations, but many are relying on savings from this year's tax refunds and low gas prices to cover basic necessities and pay off debt.

These findings from the latest Allstate/National Journal Heartland Monitor Poll and follow-up interviews with respondents reflect the fact that while some segments of the population have largely recovered after the recession, many are still struggling to cover their expenses and dig out from under years of debt—and see the savings as a welcome financial cushion.

More than half of respondents said they expect to receive a tax refund this year. Of those, 82 percent said lower fuel prices have made a difference in improving their financial situations. Thirty-seven percent of those expecting a tax refund said they plan to use it to pay off debt, 29 percent would save or invest it, and 20 percent said the money would go toward covering basic necessities. Less than 10 percent said they'd spend the extra money on something nice or fun.

Decisions on how to spend that tax refund revealed stark contrasts across race, income, and education levels. While each demographic prioritized paying off debt, only 36 percent of whites said they would use their refund to pay bills compared to 47 percent of black respondents and 43 percent of Hispanics. Whites were the most likely to save or invest their refund—30 percent reported those plans, nearly 10 percentage points higher than black and Hispanic adults.

College-educated millennials, many still shouldering long-term student-loan debt, were the most likely to expect a tax refund (74 percent). About 40 percent said they plan to put their refund toward paying off loans, about the same share who would pay off debt among those without a college degree between the ages of 18 and 64. Bailey Price, a college graduate from Lincoln, Nebraska, used her tax refund to whittle down her outstanding student-loan debt, which she expects to pay off within the next two to three years. Beyond debt, her tax return allows her family a bit more freedom in their budget.

"It's given us a little more wiggle room for certain things that pop up like a friend's baby shower, so we can actually afford a decent present for that, or recently we've had a couple things go wrong with our car and we were able to pull together funds that we wouldn't have had," says Price. "It just allows us to catch our breath a little bit more."

The share of adults saving or investing their refund also increased with each income bracket, ranging from 20 percent of those earning $30,000 or less to 40 percent of adults making $100,000 or more annually. Adults with a four-year degree aged 40 and older were most likely to save or invest their refunds and more likely to use their refund to buy something nice or fun (still only about 12 percent).

Adults over the age of 40 without a college degree were the most likely group to use their refund to pay for necessities. Barbara Thomas, 58 from Irrigon, Oregon, already spent her tax refund on medical bills from a recent surgery to remove cancerous melanoma. Thomas works seasonally in the fishing industry and over the winter, she and her husband have tried to stretch his retirement income to cover both their regular expenses and her doctor's appointments. Anything extra that comes their way—whether her refund or fuel savings—makes all the difference.

"It just makes it a lot easier to make ends meet," Thomas said. "Living on social security is tough."

About three-quarters of respondents reported saving money from low gas prices recently. Just under one-third said they're using those savings to cover necessities, 27 percent are paying off debt or buying less on credit, and 19 percent are saving or investing the difference. Less than 10 percent said they are either driving more or buying luxury items with their fuel savings.

The impact of a lower gas price followed similar patterns along racial, income, and education lines. Minority respondents were more likely to report savings at the pump having a "huge or significant" financial impact, with 38 percent and 35 percent of Hispanic and black respondents, respectively, compared to 30 percent of whites.

Sean Adams, a 23-year-old African American who works for the government near Virginia Beach, Virginia, said lower gas prices have made a huge difference for his budget. He's used the savings to pay off bills and buy necessities he put off while the fuel price was so high and filling his tank trumped other expenses.

"You shouldn't be making life decisions at the pump," says Adams, "but you do what you have to do. You have to get to work."

Parents with school-aged children were more likely to feel the impact of cheaper fuel (62 percent), compared to parents with adult children (50 percent) and non-parents (54 percent).

Kimberly McDaniel, a nursing student from Nacogdoches, Texas, says lower gas prices have cut her monthly fuel bill by more than half. She had been spending about $300 monthly to commute to medical school and to pick up her kids at school; now she only spends about $120.

A divorced mother of three, McDaniel says she's used her tax refund and fuel savings to help provide for her children, and pay off her mortgage and car payments while she's studying full-time.

"I'm basically having to use that to pay bills and everything to make it through," she says. "There's no extra spending going on right now. In a normal situation if I were still working and not going to school, we would have more money to spend money on other things, like going to the movies or taking them skating."

For more on the methodology of the Heartland Monitor Poll, see here.