Why do some high-income Americans live paycheck to paycheck?

On By Karl

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Low-income households aren’t the only ones living paycheck to paycheck.

A growing share of middle- and high-income families spend nearly their entire paycheck on basic needs, leaving little or nothing left over each month for discretionary purchases or expenses. savingAccording to the Bank of America Institute, which analyzes the banking giant’s data to identify economic trends.

Experts largely talk about historical events inflation increase Triggered by the epidemic, especially the increasing housing costsThis wipes out the incomes of many Americans, including wealthier ones.

“Higher-income people tend to own larger homes,” and those mortgage payments and other costs partially offset their rising paychecks, said David Tinsley, senior economist at the Bank of America Institute.

He said the trend could be restricted consumer spendingIt accounts for 70% of economic activity and has been supported by high-income Americans for the past few years. This also raises thorny public policy dilemmas, such as whether city or state governments should subsidize the housing costs of middle-income renters.

How many people live paycheck to paycheck?

So far this year, 24% of middle-income households earning $51,000 to $75,000 annually were living paycheck to paycheck, up from 23% last year and 20% in 2019, according to the Bank of America. Institute of America. 23 percent of those whose salaries and other income combined total between $75,000 and $100,000, an increase from 19 percent in 2019. 22 percent of those earning between $101,000 and $150,000 spend almost all of their money on basic needs; This rate is more than 18 percent.

Even the 20 percent of relatively well-off households with incomes above $150,000 are creaking by, leaving little for savings or recreational activities like vacations or going to the movies.

Of course, the struggles of low-income families with incomes below $50,000 are much greater. According to Bank of America’s data, the rate increased from 32 percent in 2019 to 36 percent. Those with incomes below $30,000 have only a few hundred dollars left after paying rent and utilities, while middle-income earners have a few thousand dollars left. Harvard University Joint Center for Housing Studies.

The Bank of America Institute analyzed cash flows into and out of a significant sample of tens of millions of consumer checking or savings accounts to determine whether more than 95% of household income is spent on necessities like food, gas, utilities, internet service, and more. and child care.

Tinsley said surveys show nearly half of Americans believe they live paycheck to paycheck, but most consider discretionary expenses like eating out to be essential purchases. Cash flow analysis provides a more accurate reading by focusing on needs.

How much has the cost of living increased?

Inflation has increased costs for people at all income levels over the past few years. According to the consumer price index, overall consumer prices have increased by nearly 20% since the beginning of 2021, while groceries have increased by 21%. But housing costs have increased further and now account for a large portion of household budgets.

According to CPI figures, rents increased by 23% in this period. Average single-family home prices rose 38 percent, according to the S&P Case Shiller National Home Price Index. Expenses have also skyrocketed, with homeowners insurance rising an average of 65% over pre-pandemic rates and property taxes rising 25%, according to Oxford Economics.

Tinsley said larger homes purchased by higher-income people come with greater insurance, tax and utility costs.

Why did housing prices increase in the USA?

In the early days of COVID–Following the 19 pandemic, many Americans fled densely populated cities and bought larger, more expensive homes in the suburbs, causing prices and rents to rise even further. Meanwhile, builders are not building enough new homes or apartments to ease price pressure, said Alexander Hermann, a senior research fellow at Harvard’s Joint Center for Housing Studies.

According to the center, 40.7 percent of middle-income renters earning $45,000 to $74,999 in 2022 were “cost burdened,” meaning they spent more than 30 percent of their income on rent and utilities. This rate increased compared to 35.3 percent in 2019. 27 percent of homeowners were also cost burdened; While 26 percent of their income went to mortgage, taxes and insurance, this rate increased to 30 percent.

Similarly, in 2022, 16.3% of all households, including renters and owners, experienced financial hardship between $75,000 and $99,999 and 10.2% between $100,000 and $124,999. This rate is higher than 15% and 9.6%, respectively, in income groups experiencing stress in 2019.

Cost-burdened households often have to cut back on other basic needs like food, health care or school supplies, Hermann said.

Have wage increases kept pace with inflation?

Many Americans have put up with the high costs. On average, strong wage growth fueled by pandemic-related labor shortages has outpaced inflation over the past 18 months, giving typical workers more purchasing power than before the health crisis.

But that’s not the case for other workers, such as high-wage workers in technology and finance who have been hit by widespread layoffs over the past few years due to rising interest rates, Tinsley noted.

‘I did it for two more weeks’

Elizabeth Rudd of Anaheim, California, received small increases in accounting work for a furniture manufacturer. But since her husband died after contracting Covid-19, she has had to rely solely on her $70,000 salary and her young adult son to make ends meet.–And homeowners’ association fees for two-bedroom apartments have increased 60% in the past three years, from $275 to $438.

Rudd, 62, stopped eating out and going on holidays, cut his cable TV package to 20 channels and cut his mobile phone plan. She turns chicken dinner into multiple meals, including lunch, and has no savings for emergencies. Despite the interruptions, each two-week period proved to be a frustrating slog.

“I’m breathing when I get my next paycheck,” he said. “Wow…I made it two more weeks…This is not where I expected to be at this age.”

Over the past few years, state and local governments have introduced more government-subsidized rentals housing programs For middle-income Americans, Hermann said. But critics worry that resources could be siphoned away from low-income residents in need.

“You want them to complement, not replace, low-income initiatives,” he said.