Ways to Spend Child Tax Credit Payments

If you’re a parent, you’re probably familiar with the Extended Child Tax Credit, whereby taxpaying parents receive prepayments of up to $300 per child under 6 and up to $250 per child between 6 and 17 years old.
The money, which began reaching parents in July, has been making its way to families through direct deposit or mail. Parents can expect the child tax credit returns to arrive in their bank accounts or mailboxes around the middle of the month during the rest of the year.
You can opt out—in order to receive the money in one go next year when you file taxes—but assuming you don’t go that route, you might be wondering how best to spend or save on your monthly Child Tax Credit payments. Here are some ideas:
Buy the necessities.
Cover secondary needs.
Memorizes.
Build your own emergency fund.
Debt repayment.
investment.
Analyze your annual spending.
Do some of the above.
Buy necessities
If you struggle with bills, or if you have enough to eat at home, this is clearly what you should be spending the money on. That’s why the federal government is sending you this money in the first place. The epidemic has affected many families. So if you have financial problems, this money is your lifeline. If you use the money to make sure the electric bill is paid or your kids get a square meal three times a day, you should spend the money on it and feel good about it.
Covering secondary needs
Keep in mind the financing expenses you’ve paid back. “Secondary needs are the necessities that come after you have met your needs,” says Chance Robinson, president of Strong Point Financial and author of Financial Myths: Important Information You May Not Know About Your Retirement and Your Financial Future.
“You might have a dentist appointment on standby because of limited money, a car that had to be fixed or some other necessity that couldn’t be completed because of a lack of money,” Robinson says.
So if that’s your situation, this money could be perfect for that. Of course, your kids may not see a visit to the dentist as the best use of the money.
Memorizes
If you are not in financial trouble, do not spend your money immediately. Instead, make a plan. Think about how you would spend the money if you reached one sum, suggests Siu Wang, a behavioral economist at the Institute for the Study of Economic Growth at Wichita State University.
“Most behavioral economists agree that without careful and thorough planning, most people view a large amount differently than if we received the same amount of money in small increments over time,” says Wang. “Imagine that you can choose between receiving a child tax credit payment of $300 per month or a lump sum of $3,600 at the end of the tax year. Which would you choose?”
It’s a good question, and it might get you thinking about how you’ll spend the money and whether you can save money each month for a while — and then put it into one big goal or thing, like college expenses.
Build your own emergency fund
If you don’t have extra cash in store, prepare for the unexpected by creating an emergency fund.
“In such a time of uncertainty, it’s not a good idea to save a little extra money on a rainy day,” Robinson says. “There’s uncertainty in terms of jobs, health, and more.” “If the family is doing well to meet its basic needs, it is advisable to make at least three to six months available for emergencies. The Child Tax Credit is an excellent opportunity to plan for any inconvenience to families in this pandemic.”
Debt repayment
This one is self-explanatory: If you pay down debt, especially high-interest loans, you’ll have more money to spend on your children and family later on.
Investment
If you’re considering the child tax credit with extra money, the best use for it is an investment, says Bing Yu, professor of finance at Meredith College in Raleigh, North Carolina.
But Yu explained that investing is only a good idea if the money is really extra. “In particular, put money into someone’s 401(k) plan,” Yu advises. “Doing so will bring three benefits: a matching employer investment in your 401(k), tax savings and a return on investment.”
You can also invest money directly in your child’s education by putting it into a 529 college savings plan.
Analyze your annual spending
Are there certain times of the year that are particularly harsh? Do you always break up during vacations, for example, or do you often put your summer family vacation on credit cards you haven’t been paying for months? You can save up the Child Tax Credit payments to use over the holidays or next summer to help make those tough parts of the year less grueling.
Do some of the above
Keep in mind that you will receive child tax credit payments during the rest of the year. The final payment comes in December. So you might like the ideas of setting up a college fund, paying off some debt, and taking care of some minor necessities. Maybe you could do a little bit of all of that.
The main thing is to come up with a plan and stick to it. Because unless Congress changes how the law is worded, parents won’t receive monthly child tax credit payments every month in 2022. So this might be one of those rare time periods where your family has a little more money than usual. If so, you’ll want to get the most out of it.