The temporary shutdown of economies around the world has caused a lot of economic issues. This is not surprising, considering so many people are temporarily unemployed.
Governments have had to act quickly to prevent a major economic collapse, and the solution for most has been stimulus payments.
The exceptions are different by country. In Canada, it only applies to those who have lost their job as a result of COVID-19. In the United States, however, everyone was entitled to a stimulus cheque.
It's a great response by governments to get emergency money in people's pockets to purchase necessities.
The thing is, however, just because you apply for stimulus money doesn't mean you may need it.
If you have temporarily lost your job, but you had a substantial emergency fund of cash that can cover your expenses for the next six months or so, you could be in an excellent position.
Your financial literacy and preparedness have paid off. Because you can receive the stimulus money, but you also have your rainy-day fund, you may not even need the stimulus at all.
Invest your stimulus money
Essentially, the money you chose to save in the past when others weren't can allow you to take this emergency money now that you qualify for and use it to grow your savings.
In this case, you would essentially be receiving free money (albeit money you'll be taxed on) to go out and do whatever you want with it.
And since stock markets are crashing creating some high-quality discounts in stocks and other cryptocurrencies, buying investments with that stimulus money seems like the most opportune thing to do with the capital.
The only reason you may be in this position is because you were disciplined in the first place to save up an emergency fund. So it only makes sense now that you are rewarded for that preparedness.
Why it's not unfair
When I first put this idea out there, I got some backlash accusing me of advising people to abuse the system. I have two things to say to that.
First off, if the system has these incentives in the first place, then the government who put it in place should address that. I'm an economist, and in economics, you expect people to make the most rational decision. In the case of being offered free money, almost everyone is going to take it.
Secondly, to say somebody doesn't need the money because they were disciplined enough to save a rainy day fund while others were spending it on discretionary items is a bit misguided. It's not our job as individuals to redistribute the wealth.
Furthermore, what's to say someone earning $50,000 a year was prepared for this, and someone earning $100,000 but extremely in debt wasn't. So only the higher-earning person should be compensated because they need the money the most today?
Here's an example
Person A and Person B both work for the same employer, earn the same salary of $50,000 a year, and have the exact same living expenses.
After paying their living expenses, each individual has $10,000 a year left to spend on entertainment, save or invest.
Person A decides to only spend $5,000 a year and save the other $5,000. They do this for two years and build up a $10,000 rainy day fund.
Person B, on the other hand, spends way more than they can afford buying a sports car, a speed boat, and a tonne of jewelry. After two years, Person B is $10,000 in debt and has no savings.
All of a sudden, both Person A and Person B are now out of a job due to COVID-19.
Now just because Person A was more conservative and disciplined with their finances, they shouldn't be entitled to receive the free money they are funding themselves (as taxpayers)?
To me, it doesn't make sense to call this unfair.
If you are in a position where you may not necessarily need the stimulus money, but you still qualify for it I'd recommend investing it.
Many assets are trading at some of the lowest prices in over a decade, making this the perfect opportunity to take whatever money you can afford and making some high-quality, long-term investments.