Vanishing Act: The Law Of Household Economics
For Every Financial Windfall, There Will be..
An Equal, Unexpected Cost;
 
Tax Rebate=Appliance Repair
By, KAREN BLUMENTHAL
 
The federal government's economic-stimulus checks are still hitting mailboxes, putting some $100 billion in the hands of more than 130 million households this summer. If you're receiving one of them, you're probably plotting how to spend your windfall.
 
If your house is like ours, you may not have a chance to do any of those things. Instead, the $300 to $1,200 that arrives courtesy of the Internal Revenue Service -- and maybe even more if you have children -- will fall victim to the insidious and unforgiving Law of Household Economics.
 
Haven't encountered this law? It goes like this: For every financial windfall that comes into your home, there will be an equal, unexpected household cost.
 
Our family first stumbled on this reality several years ago when we cleaned out closets and kids' toys to join in a family garage sale. We loaded up the minivan with stuff the day before the sale and my husband stuck a dolly in the back just in case someone needed it. It shifted, and when he slammed the back door, the handle of the dolly crashed through the rear window.
 
Some colorful words were shared. But despite the setback, the garage sale went on. When the organizer tallied up the proceeds, she challenged us to guess our take.
 
"Three hundred and twelve dollars," my husband replied.
 
She looked stunned. He was off by maybe a couple of bucks. "How did you know?" she asked.
 
"That's what it cost to fix the minivan window," he sighed.
 
Since then, we've been bitten by this financial beast more times than we can count. A nice bonus from work arrives just as one of the kids begs to go to an expensive sleepaway camp, or the upbeat mood from a stock-market profit is deflated when a tire blows out on the drive home. The absolute worst was the day my husband called to report that he would receive a few thousand dollars from the sale of Japanese rights for a book he wrote. He was giddy.
 
I was in tears. Just before his phone call, I had learned that a natural-gas leak in the backyard would require extensive digging and pipe repairs. The estimate was exactly the same as his rights payment -- to the dollar.
 
Unfortunately, this financial rule is already afflicting the next generation. This month, in the course of a few days, our youngest daughter turned 18, picked up her first paycheck from a summer job and got her first speeding ticket -- which may set her back both the paycheck and at least one birthday check.
 
It's not that we don't have good intentions; most of us do. At the time of the 2001 tax rebate, University of Michigan professors Matthew D. Shapiro and Joel B. Slemrod surveyed more than 1,000 people, asking them whether the $300 to $600 windfall would lead them to increase spending, increase savings or pay off debt. Only 22% of those receiving rebates expected to increase spending. The rest were planning to either to reduce debt or increase savings.
 
More recently, several polls have found that roughly 75% of those expecting rebate checks this year planned to use them to pay bills or increase savings. Only about one in five Americans admitted to plans to increase spending.
 
Reality, however, appears to be something else. Researchers David S. Johnson of the Bureau of Labor Statistics, Jonathan A. Parker of Princeton University's Woodrow Wilson School and Nicholas S. Souleles of the University of Pennsylvania's Wharton School found that about two-thirds of the 2001 rebates were spent in the six months after they were received.
 
Already this year, retail sales in May -- the month when the first checks were sent -- were up 2.5% over May 2007, with gasoline stations showing the biggest jump.
 
In other words, life happens. Just as we prepare to get ahead, some unbudgeted expense explodes in front of us and we have to deal with it. The Law of Household Economics isn't so much about rotten luck as it is about the endless challenge of keeping our financial house in order. Staying on top of the budget, keeping the credit cards in check, and building those savings and retirement accounts takes real discipline and hard work. Windfalls won't get us there. Instead, we have to sweat the spending details, worry about investment returns and, in times like these, cut back or even scrimp.
 
In fact, if Americans hadn't tightened their belts, Congress wouldn't be sending us rebate checks to begin with. As we grapple with higher gasoline prices, rising food costs and higher mortgage rates, we've also adjusted our shopping, dining out and extravagant latte habits. Just ask J.C. Penney, Gap and Starbucks.
 
Congress can't take credit for the Law of Household Economics, but it should be grateful for it. It may jolt us into our patriotic duty of spending, even if we are determined to add to savings or eliminate some bills. I clearly remember our family's last rebate. We had high hopes for our expected $500. But a week before it arrived, the air conditioning went out.
 
The bill to repair it? $500.