Living paycheck to paycheck is more common, even when the paycheck is higher
Paul Davidson, USA TODAY
Updated 6 min read
Lower-income households aren’t the only ones living paycheck to paycheck.
A growing share of middle- and higher-income families are spending virtually all of their paychecks on essentials and have little or nothing left over each month for discretionary purchases or savings, according to the Bank of America Institute, which analyzes the banking giant’s data to identify economic trends.
Experts largely cite the historic inflation spike triggered by the pandemic, particularly the surge in housing costs, which gobble the incomes of many Americans, including those who are wealthier.
“Higher-income folks tend to have bigger homes” whose mortgage payments and other costs partly offset larger paychecks, said David Tinsley, senior economist at the Bank of America Institute.
The trend, he said, could curtail consumer spending, which makes up 70% of economic activity and has been powered by higher-income Americans the past few years. It also raises thorny public policy dilemmas, such as whether city or state governments should subsidize housing costs of middle-income renters.
How many people are living paycheck to paycheck?
So far this year, 24% of middle-income households earning $51,000 to $75,000 a year have been living paycheck to paycheck, up from 23% last year and 20% in 2019, before the COVID-19 crisis began, according to the Bank of America Institute. Among those with salaries and other income totaling $75,000 to $100,000, 23% are just scraping by, up from 19% in 2019. For those earning $101,000 to $150,000, 22% are spending nearly all their money on basics, up from 18%.
Even 20% of relatively well-heeled households with incomes above $150,000 are squeaking by with little left for savings or fun activities like vacations or moviegoing.
Of course, the struggles of lower-income families with incomes under $50,000 are far greater. Thirty-six percent live paycheck to paycheck, up from 32% in 2019, according to Bank of America’s data. Those with incomes under $30,000 typically have just a few hundred dollars left after paying rent and utilities, compared to a few thousand dollars for middle-income people, according to the Joint Center for Housing Studies at Harvard University.
Bank of America Institute analyzed the cash flowing into and out of a significant sample of their tens of millions of consumer checking or savings accounts to determine whether more than 95% of household income is spent on necessities such as food, gasoline, utilities, internet service and child care.
In surveys, the institute found nearly half of Americans believe they are living paycheck to paycheck, but many are likely counting discretionary spending such as dining out as essential purchases, Tinsley said. The cash flow analysis provides a more accurate reading by focusing on necessities.
How much has the cost of living gone up?
Inflation has driven up costs for people at all income levels in the past few years. Overall consumer prices are up nearly 20% since early 2021 and groceries are up 21%, according to the consumer price index. However, housing costs have increased even more and comprise a large share of household budgets.
Rent has climbed 23% during that period, consumer price index figures show. And average single-family home prices have leaped 38%, according to the S&P Case Shiller National Home Price Index. Related expenses also have skyrocketed, with homeowners insurance soaring an average of 65% from prepandemic rates and property taxes increasing 25%, according to Oxford Economics.
And the larger homes bought by higher-income people come with bigger insurance, tax and utility costs, Tinsley said.
Why has the cost of housing gone up in the US?
In the early days of the COVID-19 pandemic, many Americans fled densely populated cities and bought larger more expensive homes in the suburbs, driving their prices, along with rents, higher. Meanwhile, builders weren’t putting up enough new houses or apartments to ease price pressures, said Alexander Hermann, senior research associate at Harvard’s Joint Center for Housing Studies.
In 2022, 40.7% of middle-income renters earning $45,000 to $74,999 were “cost-burdened,” meaning they devoted more than 30% of their income to rent and utilities, according to the center. That was up from 35.3% in 2019. Twenty-seven percent of homeowners were also cost-burdened – with 30% of their income going to mortgages, taxes and insurance – up from 26%.
Similarly financially strained in 2022 were 16.3% of all households, including renters and owners, earning $75,000 to $99,999 and 10.2% earning $100,000 to $124,999. That’s up from 15% and 9.6% of those income groups, respectively, who were stressed in 2019.
Cost-burdened households typically have to cut other essentials, such as food, health care, or school supplies, Hermann said.
Has wage growth kept up with inflation?
Many Americans have kept pace with the higher costs. On average, strong wage growth, stoked by pandemic-related labor shortages, has outpaced inflation over the past 18 months, giving typical workers more purchasing power than they had before the health crisis.
But Tinsley noted that hasn’t been the case for other workers, such as higher-paid employees in technology and finance, which have been hit by widespread layoffs due to rising interest rates the past couple of years.
'I made it another two weeks'
Elizabeth Rudd, of Anaheim, California, has gotten small raises in her job handling accounting for a furniture manufacturer. But she has had to rely on her $70,000 salary exclusively to support herself and her young adult son since her husband died after contracting COVID-19 in 2021. The homeowners association fees for their two-bedroom condo have increased 60% in the past three years, from $275 to $438.
Rudd, 62, has stopped eating out and taking vacations, slimmed her cable TV package to 20 channels and downgraded her cellphone plan. She turns a chicken strip dinner into multiple meals, including lunch, and has no savings for emergencies. Even with the cutbacks, each two-week period has become a nerve-jangling challenge.
“I take a breath of air when I get the next paycheck,” she said. “Whew…I made it another two weeks…This is not where I expected to be at this age.”
In the past few years, state and local governments have launched more government-subsidized rental housing programs for middle-income Americans, Hermann said. But critics worry they could siphon resources from needier lower-income residents.
“You want them to be complementary “ to low-income initiatives, not replace them, he said.
