Living “paycheck to paycheck” is a phrase often used to describe households in dire financial straits. But what does this actually mean, and how many people spend their paychecks quickly after earning them?
The Bank of America Research Institute defines the amount of subsistence pay as “a household in which necessary expenses exceed 95% of household income, and there is relatively little available for ‘nice-to-have’ discretionary expenditures or savings.” It is defined as
“Many of these spending pressures are likely unavoidable because they are related to family and housing costs,” David Tinsley, senior economist at Bank of America Research Institute, told CBS MoneyWatch. he said.
In a survey of consumers conducted in the third quarter of 2024 by the Bank of America Institute, about half said they considered themselves barely living on their paychecks.
The financial research firm also analyzed the spending patterns of its customers and found that nearly a quarter of Americans are actually living paycheck to paycheck, with most of their monthly income going directly to necessities. I decided.
“The proportion of households living paycheck to paycheck has increased slightly in recent years, but this is not too surprising as the prices of many essential items have increased. Because prices are going up, the cost of car insurance is going up, child care is going up,” Tinsley said.
The majority of Americans say you feel sick more than four years ago, according to Gallup. and 6 out of 10 voters explain According to a CBS News poll, the U.S. economy is either “fairly bad” or “very bad.”
As income increases, housing costs also increase
Low-income households have a higher proportion of people living paycheck to paycheck, but families at the top of the income ladder also fall into the same category.
About 35% of households making less than $50,000 a year are living paycheck to paycheck, up from 32% in 2019, according to internal data from Bank of America. Meanwhile, about 20% of households with annual incomes of $150,000 are living paycheck to paycheck, according to a study by the Bank of America Research Institute. Tinsley said the main reason for this is high fixed housing costs.
He said, “High-income earners tend to own expensive homes, and many of them are likely to pay a large amount of money each month on their mortgage.Therefore, there is a possibility that high-income earners will end up spending a large amount of money on daily necessities. There are enough.”
Living paycheck to paycheck is financially difficult. “This is usually thought of as a bad thing that increases stress and impairs financial well-being,” Tinsley says.
It’s also a difficult cycle to break out of. Housing costs are often the largest expense for households, but they can be difficult to minimize.
“For most people, if you have kids in schools in a certain area, you have very little control over where you live or how much you pay for a home,” Tinsley says. “Many of these costs are high, and there’s not much you can do about them.”
In the long run, such households will have little savings and will be exposed to economic shocks.
Tinsley said, “If there is another inflationary shock, or if the economy deteriorates more rapidly than expected, and people lose their jobs, people living paycheck to paycheck will immediately have to drastically increase their spending to make ends meet.” “We will be under pressure to reduce this by 20%,” he said. “And that affects the entire economy.”
