• by Aaron Baar , May 8, 2008

When it comes to consumers and their tax refunds and stimulus checks, necessary purchases and debt reduction are at the fore. More than 85% of American consumers are concerned about the economy and their own financial picture, according to new research from Discover Financial Services.

"Confronted with record-high gas prices, consumers have shown little confidence in the economy," Matthew Towson, a representative of the Riverwoods, Ill., credit card company, tells Marketing Daily. "A majority of them have cut back on discretionary spending as a result."

According to the company's monthly "U.S. Spending Monitor Survey," nearly two-thirds (62%) of American consumers expecting to get a refund or stimulus check expect to spend the money on household expenses or debt repayment. In addition, 18% said they would put the money in savings or investment, while only 20% said they would use the money for discretionary purchases.

Meanwhile, 38% of consumers said they are spending more on household expenditures like gas and groceries. And 56% said they expect to spend more on household expenses in the next month. As a result, 51% said they would continue to cut back on discretionary purchases, while 46% said they would cut back on home improvements or major purchases like a vacation.

According to the survey of 15,000 Americans, half of them still expect to have some money left over after paying the monthly bills, although 27% of them say they'll have less money left over than the previous month. In addition, 52% of lower-income consumers (those making less than $40,000 a year) said they expect an added expense or income shortfall in the next month, while nearly 40% of middle income consumers (those making $40,000-$75,000) said the same. <> The one bright spot of the monthly survey is that higher-income consumers (those making $75,000 a year or more) are slightly more confident in the economy than middle- and lower-income consumers. Thirteen percent of upper-income consumers said economic conditions were getting better (up 2% from March), and 24% considered their personal finances to be in excellent condition.

"That is one positive sign," Towson says. "However, they are still concerned about the economy, as are consumers at other income levels."