Economic Stimulus
Why you should save — or invest — your tax refund
By Richard Entenmann
President, Asset Builders of America, Inc.

     By now, most people will have heard about the Economic Stimulus Plan (ESP) – the federal government’s initiative to get the
economy moving again by putting spending money in the hands of many taxpayers.  In fact, most people will have already filed their
federal income tax returns and will be in line to receive their ESP.
    Let’s review how the plan works.  Under the ESP, the government will pay an amount equal to a person’s tax liability on his or her
2007 tax return, up to a maximum amount of $600.  Eligible taxpayers can receive an additional $300 for each child.  
    Taxpayers who file a return for 2007 don’t need to do anything extra to get their ESP.  The IRS will use information on the 2007
tax return to determine eligibility and will calculate the amount of the stimulus payments.  Payments are set to begin on May and will
continue through mid-July.
    Who is eligible?  Every taxpayer with a valid Social Security Number.  For those who are married and file jointly, both taxpayers
must have a valid social security number, and children must have a valid Social Security Number to quality for the $300 payment.  
    Some taxpayers who have no tax liability, such as low-income workers or those who receive Social Security benefits or veterans’
disability compensation, or pension or survivors’ benefits from the Department of Veterans Affairs in 2007, are also eligible.  Although
these individuals typically would not need to file a return, they do need to make a tax filing this year to receive the ESP.
    There are some limits on who can receive an ESP.  Taxpayers who file their tax returns using an Individual Taxpayer Identification
Number issued by the IRS or any number issued by the IRS are ineligible.  And at high income levels – adjusted gross income over
$75,000 for individuals and over $150,000 for those filing jointly - the ESP will start to phase out.  
    So, what should people do with the money when they receive their checks?  I hope that people will not spend all of it – that
instead they will use this one-of-a-kind opportunity to start getting their financial houses in order.  
    People in almost every financial circumstance will benefit by using the ESP to pay down existing debt, by saving some or all of
the ESP, or by investing the ESP.  What you should do depends on your own finances.
    For people who have credit card debt, or other personal debt, there is no better use of the ESP money than to get rid of as much
that debt as possible.  Personal debt carries a high rate of interest, and interest on unpaid balances builds on itself – compounds – for
as long as the debt is outstanding.  Paying more for everything – in the form of meeting ongoing interest obligations – has no benefit
for the debtor.
    People who are free of personal debt have a great opportunity to begin building a sound financial future by saving their ESP.  
Financial experts unanimously recommend that everyone should have a “cushion” of money in the bank, to help people get past the
proverbial “rainy day.”  
    That bank account can help with unexpected expenses such as car repairs, medical bills, and home repairs.  Indeed, many cite
these kind of unexpected expenses as a frequent cause of personal bankruptcies.  
Why not save the money NOW to help prevent bankruptcy down the road, or to avoid resorting to high-cost lenders such as cash
advance stores and payday lenders?
    And people who already have a financial cushion would benefit by investing their ESP.  People should only invest money in
stocks that they won’t need in the near future and need to be careful how and where they make their investments.  But for long-term
investors, returns on common stocks have beaten inflation and other investments.  And starting a retirement savings account, or
adding to an existing account, really makes sense.
    There is even a good argument that saving ESP payments is good for the economy.  National savings rates have consistently
fallen in the past years, and experts report that the national savings rate has been negative recently.  For the long-term health of the
US economy, a negative savings rate cannot continue forever.  Savings are good for the economy because saved money is available
for banks to lend out again, stimulating additional economic activity.  Aside from obvious benefits on a personal level, savings
provides capital for future business growth.
     So do yourself a favor and put the ESP to good use – don’t spend it!

Asset Builders is a Wisconsin nonprofit organization with a mission to promote financial education and wealth-building strategies to
enhance the quality of life of low-income youth, families, and communities.  We conduct the Youth POWER Academy of Finance, a 2-
week personal finance “boot camp” for middle-school and high-school students on the campus of Edgewood College starting on June
16.  The Academy is in session from 8:30 until 12 noon each day.  Asset Builders also conducts the Money Conference statewide –
and the Madison Conference is coming up on August 16 at Wright Middle School!  Please call Richard Entenmann at 663 6332 for
information on both programs, or visit www.assetbuilders.org.