Here's how parents are spending stimulus checks sent to their kids

When the last round of stimulus checks came in for Laurynn Vaughn, 37, and her two daughters, aged 4 and 5, her first thought was to save it.

Before the pandemic, she had about $1,000 in savings. But during the health crisis, Vaughn, who runs a daycare in Kissimmee, Florida, and is also a notary and process server, realized that wasn’t nearly enough to cover her family in the event of another emergency.

“I had in the back of my mind that I have to build savings because I need at least six months of emergency savings,” she said.

More from Invest in You:
How to resist the urge to splurge in a post-pandemic spending spree
How to avoid overspending in this hot housing market
How to vet budgeting and investing apps

By the time the money came, however, other expenses cropped up. She home schools her daughters and had to pay for curriculum, rent, groceries and business and car insurance.

Still, she was able to save about $2,000 of the $4,200 she received. Vaughn is a member of SaverLife, a nonprofit focused on financial security

“I’m definitely in a better place, but I’ve not met my goals,” she said, adding that she’s saved about half of the amount she’d need for six months of living expenses.

The impact of stimulus payments

The last round of economic impact payments started going out to eligible families in March after President Joe Biden signed the $1.9 trillion American Rescue Plan.

The full amount was $1,400 for individuals making less than $75,000 in adjusted gross income and married couples filing taxes jointly and earning under $150,000. In addition, $1,400 payments went to children, including dependents 17 and older.

This marked a change from the first two economic impact payments, which gave children a smaller amount in the first round and didn’t include dependents 17 or older.

Data shows that the larger amounts sent to families with dependent children helped boost economic stability.

Food insufficiency, especially in households with children, dropped by 42% from December through April, according to a study from Patrick Cooney, assistant director of economic mobility at Poverty Solutions at the University of Michigan and H. Luke Schaefer, a professor of justice and social policy and faculty director at Poverty Solutions. The study, which analyzes Census Bureau data, showed the largest drops coincided with stimulus checks.

A broader gauge of financial instability dropped 43% between December and April for respondents with children, the study found. Families were able to catch up on housing payments, and their mental health also improved as stimulus money flowed to their households.

“When the federal government took action in the form of robust, broad-based cash income transfers that responded to macroeconomic conditions, hardship was held at bay and by some estimates even declined,” the co-authors wrote in the study.

Helping kids adjust to pandemic life

Some families used the money to adapt to pandemic life and prepare for the post-pandemic new normal.

Monica Ferrey, 43, received $1,400 payments for two of her four children — her son, 10 and her daughter, 19, who was finally eligible for a stimulus check in the third round as an adult dependent. Ferrey’s eldest is 26 and therefore out of the house, and she has one more son, aged 17, who is claimed by his dad.

Just before the pandemic started, she’d started a new full-time job as a community development specialist in San Francisco, which helped the family stay afloat. Still, Ferrey had counted on bringing in extra income from part-time work as an aesthetician and helping set up conventions, side gigs that were slammed by Covid.

Ferrey gave her daughter, who started college this year, her check to buy a desk to help while she’s doing schoolwork at home. The rest went into her savings account.

For her son, she bought school supplies and a digital piano so he can learn to play. She also gave him some spending money, which he used to buy a video game — one of the few ways he’s been able to connect with friends amid virtual school.

Ferrey also used a portion of her stimulus check for a car repair and to take the family on a vacation to nearby Monterey, California.

“It was really nice to just be able to get them outdoors, because I feel like having them inside so much was really difficult for everybody,” said Ferrey, also a member of SaverLife.

The rest of the money went into building her emergency savings fund. Before Covid, she had started a fund but wasn’t too focused on how much was in it. Now, she’s tuned into saving between three and six months of expenses.

“I’m trying to take as much of a big chunk as I can and put it away,” she said.

Playing catch up

For some, the money was already spent when they received it. At the beginning of the pandemic, Brittany Baker, 36, was furloughed from her housekeeping job at a hospital in Dayton, Ohio, because she was high risk for Covid-19 and pregnant at the time. In the 25 weeks it took her to receive unemployment, she fell behind on bills.

Baker has three children — a 4-year-old, a 1-year-old and an 11-month-old baby. She’s also pregnant and due in August.

When the last round of stimulus checks came — including $1,400 payments for her two older children — most of that money went to paying rent she owed.

“It was just a way to pay another bill,” she said. Even though she was able to go back to work this year, she’s still thousands of dollars behind and preparing for the birth of her fourth child.

“I did what I had to do, not what I wanted,” said Baker, who is also a SaverLife member.

What’s next

Although it’s unlikely that Americans will get another stimulus check, more help is on the way for families with children. The American Rescue Plan also expanded the child tax credit through the end of the year and stipulated that half of the credit would be sent to families in monthly payments.

Those payments will begin July 15. Individuals with children and adjusted gross income of less than $75,000, or $150,000 for those married and filing jointly, will receive the full credit, which is $3,000 per child 17 or younger for the year, plus an additional $600 for children under the age of 6.

That amounts to $300 monthly for a child under 6, and $250 each month for children aged 6 to 17. There is no limit on the number of children who can receive the credit if their family is eligible.

The monthly payments will continue through December. When families file their 2021 taxes, they’ll receive the second half of the credit in the form of a tax refund.

SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.

CHECK OUT: How to make money with creative side hustles, from people who earn thousands on sites like Etsy and Twitch via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.