This paper develops a structural economic model to explain the consumption response to fiscal stimulus payments, such as tax rebates. The model incorporates two types of assets: a low-return liquid asset (e.g., cash) and a high-return illiquid asset (e.g., housing or retirement accounts) with transaction costs. The optimal life-cycle portfolio choice implies that many households are "wealthy hand-to-mouth," holding little liquid wealth despite owning significant illiquid assets. These households display large propensities to consume out of additional transitory income but small propensities to consume out of news about future income. The model is parameterized to match the 2001 tax rebate episode, yielding consumption responses that are consistent with empirical evidence and are significantly larger than in standard one-asset frameworks. The model's nonlinearities with respect to rebate size, phasing-out, and economic conditions have implications for policy design. The presence of wealthy hand-to-mouth households amplifies the consumption response to fiscal stimulus payments, with a larger effect when households are constrained by transaction costs or high interest rates on unsecured credit. The model also replicates key empirical findings, such as heterogeneity in consumption responses and a negative correlation between consumption response and liquid wealth holdings.This paper develops a structural economic model to explain the consumption response to fiscal stimulus payments, such as tax rebates. The model incorporates two types of assets: a low-return liquid asset (e.g., cash) and a high-return illiquid asset (e.g., housing or retirement accounts) with transaction costs. The optimal life-cycle portfolio choice implies that many households are "wealthy hand-to-mouth," holding little liquid wealth despite owning significant illiquid assets. These households display large propensities to consume out of additional transitory income but small propensities to consume out of news about future income. The model is parameterized to match the 2001 tax rebate episode, yielding consumption responses that are consistent with empirical evidence and are significantly larger than in standard one-asset frameworks. The model's nonlinearities with respect to rebate size, phasing-out, and economic conditions have implications for policy design. The presence of wealthy hand-to-mouth households amplifies the consumption response to fiscal stimulus payments, with a larger effect when households are constrained by transaction costs or high interest rates on unsecured credit. The model also replicates key empirical findings, such as heterogeneity in consumption responses and a negative correlation between consumption response and liquid wealth holdings.