Polls say that U.S. consumers will spend around $700 on Christmas gifts this season, yet will get a far greater windfall when they receive their tax refund. In fact, year in year out, 75% of all individual taxpayers get a refund from the IRS.
Not only that, but according to the latest IRS report, the average federal tax refund will increase to $3,034 in 2014, 3% higher than last year’s average. Not surprisingly, consumers have started filing earlier in the year so they can get their refunds sooner. [source]
How will consumers spend this annual windfall? Networked Insights, a Chicago-based marketing enterprise software platform, examined social data spanning the 2013 and 2014 tax seasons.
For starters, it’s those nagging financial obligations – paying down bills or contributing to savings – that continue to take the biggest chunk of individual refunds, yet how consumers spend what’s left has begun to show considerable change.
Figure 1.1: Bar chart depicting data from consumers who specifically stated what they were spending their tax refund on; ranked according to 2014 data.
"By using our discovery technology,” said Rick Miller, VP of Marketing and Advertising at Networked Insights, “we can not only learn the specific areas in to which consumers are likely to channel their money but also how far along they are in the purchase funnel. This is an enormous advantage to brands who want to influence in real time where that money is spent by consumers.”
So what are these indulgences consumers are looking to spoil themselves with after their pay off from the taxman?
Well, how about a new tattoo? According to the Networked Insights data, new ink leads the discussion when it comes to the beauty sector, ahead of hair and cosmetic surgery, while in fashion, clothing, shoes, and accessories top the list.
In electronics, computer accessories reigned above guitars, phones and video games, popular this year due to the release of the XBOX One and PS4 during the holidays.
In travel, warmer destinations held sway, with consumers getting excited by sun-drenched locations such as Florida, Disney, Bahamas, Mexico and Las Vegas.
Figure 1.2: Bar chart depicting data from consumers who specifically stated they were spending their refund in the financial category; ranked according to 2014 data.
A word of warning, however, for those who hope that bigger refunds and increased conversation are a sure fire home run for the American economy. Purchase intent and brand familiarity for big-ticket electronics and the auto category are down this year, which could mean that while purchase intent is up, consumers could end up spending less.