Chinese Newspaper: Don't Spend that Rebate Check!

Your tax rebate check is coming soon, and the idea is simple: Spend the cash, prop up the economy.

But a leading Chinese newspaper, in its editorial page, has very different advice: Sock it away.

Americans should use their forthcoming rebate checks to pay down debt and build up an emergency savings account, according to the Shanghai Daily.

"What you need to focus on is not what your government wants you to do for the national economy, but what you can do for your personal financial security,” the paper counsels. "Help yourself first.”

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Heeding Washington’s entreaties to stimulate the economy by spending rebate funds as quickly as possible will only serve to increase chances of a recession and hasten its slide, said the paper.

And if you get laid off, don't count on extended unemployment benefits to help you weather the storm -- that provision didn't make it into the final stimulus package.

The editorial then points out that paying down credit card debt makes much more sense than buying stocks in a bear market.

Even in bull markets, rarely do investors earn the 18 percent or more consumers typically pay on their credit card debt. For some credit cards, that figure has jumped to an eye-popping 30 percent or more.

After paying off credit card debt, the newspaper advises Americans to do what American corporations have been carefully doing for the past decade: Stash away cash for emergencies.

Cash as a percent of total corporate assets has increased sharply over the past 10 years for most U.S. companies, while U.S. consumers have technically gone negative -- spending more than they have or save.

In fact, corporate savings have soared as capital expenditures declined, putting corporations in a far stronger position than consumers to stimulate the economy.

For instance, companies might suddently begin hiring, spend more on materials or equipment or simply put wealth back into the hands of investors by issuing special dividends.

While it’s true that interest rates on consumer savings accounts are slipping, banks are so starved for deposits that a six- or 12-month CD can protect and grow that rebate check.

Even those without credit card debt and with an emergency cash fund in place still shouldn't spend their rebates.

"Invest it for the long term and you can easily increase the value of your rebate fivefold,” the  paper says, noting that a married couple with three children could be in line for a $2,100 rebate.

"Invest that $2,100 in a Roth IRA and in 35 years it'll be worth about $34,000, assuming an annualized average 8 percent return.”

Editor's note:
Turn $10,000 into $161,000 in less than six weeks!
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