More green than usual has sprouted this spring, in the form of income tax refunds.
They averaged $2,811 on federal returns as of early March, up 9.1 percent from the previous year, the Internal Revenue Service reported.
The gain is attributed mostly to new tax breaks aimed at stimulating the economy. But before the recipients pluck the cash and spend it, they should consider other uses, financial experts say.
They could pay down high-interest debts. They could boost their emergency funds. They could invest the money toward future needs.
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"This is really a once-a-year opportunity to sit down and think about some of their longer-term goals," said Chris Battreall, a certified financial planner with Waypoint Financial Advisors in Modesto.
The tax breaks were enacted to get people to spend money, which would mean more jobs and, ideally, an end sometime soon to a severe recession that started in late 2007.
"We anticipate that more people may be taking advantage of new tax credits and deductions related to the economic recovery," IRS spokesman Jesse Weller told The Sacramento Bee.
Financial experts say spending a refund quickly is just fine -- as long as the spenders are not weighed down by debt or behind on saving for retirement or other needs.
Battreall said paying down credit card debt is a priority. It tends to have a high interest rate, so the debt will pile up fast if left alone. Investing in tax-deferred retirement and college education plans also is wise, Battreall said.
The stock market has been battered by the recession and financial turmoil, but it can pay off for long-term investors, such as parents whose children are several years away from college. Stash some for emergency
Battreall and other experts also suggest that households save enough money to cover three to six months of living expenses, in case of job loss or other trouble, and to keep this money in accounts that can be tapped quickly.
Other ideas for handling the average $3,500 in total refunds came from three experts contacted by The Sacramento Bee.
John Cicotte, a certified financial planner and enrolled agent in Roseville, said it could be well spent on life, health, home or other insurance. He also suggested giving to charity or saving the money for retirement, education, weddings, vacations or other needs.
Cicotte also said a refund that large suggests that withholding should be reduced.
"It's a big deal to get that check, but it would be an even bigger deal to put that $300 away each month and accumulate interest," he said.
Catherine Patrick, a certified public accountant in Sacramento, said people with few liquid assets should put the refund in a savings or money market account. "In this economy, cash is king. Be prepared for the unexpected."
Patrick said people who already have these savings should invest in a stock index fund, "as the market may be near its bottom." Those with even more liquid assets could invest in real estate, she said.
Cameron Beck, managing director at UBS Financial Services in Sacramento, echoed the ideas on rainy-day reserves, credit card debt, saving for college and retirement, and giving to charity.
He also suggested refinancing homes, investing in stock mutual funds and improving energy efficiency at home.
"Spend the money," he added. "Our economy could use some stimulus."
Bee staff writer John Holland contributed to this report.