Why some higher income Americans live paycheck to paycheck too
6 mins read

Why some higher income Americans live paycheck to paycheck too

Kaneb0

play

Households with lower incomes are not the only ones living paycheck to paycheck.

A growing share of middle- and high-income families spend virtually all of their paychecks on essentials and have little or nothing left over each month for discretionary purchases or savingsaccording to the Bank of America Institute, which analyzes the banking giant’s data to identify economic trends.

Experts largely cite the historical inflation cap triggered by the pandemic, especially the recovery accommodation costswhich eats away at the incomes of many Americans, including those who are wealthier.

“People with higher incomes tend to have bigger homes” whose mortgage payments and other costs partially offset larger paychecks, said David Tinsley, senior economist at the Bank of America Institute.

The trend, he said, may be declining consumption expenditurewhich make up 70% of economic activity and have been driven by higher-income Americans in recent years. It also raises difficult public policy dilemmas, such as whether city or state governments should subsidize housing costs for 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 a year have lived paycheck to paycheck, up from 23% last year and 20% in 2019, before the start of the Covid-19 crisis, according to the Bank of America Institute. Among those with wages and other income totaling $75,000 to $100,000, 23% are just scraping by, up from 19% in 2019. For those making $101,000 to $150,000, 22% spend almost all of their money on the basics, up from 18 %.

Even 20% of relatively well-off households with incomes over $150,000 squeak by with little left over for savings or fun activities like vacations or the movies.

Of course, the struggle for lower-income families with incomes below $50,000 is much greater. 36 percent live paycheck to paycheck, up from 32% in 2019, according to Bank of America data. Those with incomes below $30,000 typically have only a few hundred dollars left over after paying rent and utilities, compared to a few thousand dollars for middle-income earners, according to Joint Center for Housing Studies at Harvard University.

The Bank of America Institute analyzed the money flowing in and out of a significant sample of their tens of millions of consumer or savings accounts to determine whether more than 95% of household income is spent on necessities such as food, gas, utilities, Internet services and child care.

In surveys, the institute found that nearly half of Americans believe they were living paycheck to paycheck, but many likely counted discretionary expenses like eating 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 increased?

Inflation has driven up costs for people at all income levels in recent years. Overall, consumer prices have risen nearly 20% since the start of 2021, and staples have risen 21%, according to the Consumer Price Index. But housing costs have increased even more and make up a large part of household budgets.

Rents have climbed 23% over that period, CPI figures show. And average single-family home prices are up 38%, according to the S&P Case Shiller National Home Price Index. Related spending has also soared, with homeowner’s insurance surging an average of 65% from pre-pandemic rates and property taxes up 25%, according to Oxford Economics.

And the larger homes bought by people with higher incomes come with higher insurance, tax and energy costs, Tinsley said.

Why have housing costs increased in the United States?

In the first days of covid–After the pandemic, many Americans fled densely populated cities and bought larger and more expensive homes in the suburbs, driving their prices, along with rents, higher. At the same time, builders were not putting up enough new houses or apartments to ease price pressure, said Alexander Hermann, a senior research associate at Harvard’s Joint Center for Housing Studies.

By 2022, 40.7% of middle-income renters earning $45,000 to $74,999 were “cost burdened,” meaning they spent more than 30% of their income on 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 strapped in 2022, 16.3% of all households, including renters and owners, earned $75,000 to $99,999 and 10.2% earned $100,000 to $124,999. This is an increase from 15% and 9.6% respectively of the income groups that were stressed in 2019.

Cost-strapped households typically have to cut back on other essentials, such as food, health care or school supplies, Hermann said.

Has the wage trend kept pace with inflation?

Many Americans have kept up with the higher 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 they had before the health crisis.

But Tinsley noted that has not been the case for other workers, such as higher-paid employees in technology and finance, who have suffered widespread layoffs due to rising interest rates in recent years.

“I made it another two weeks”

Elizabeth Rudd of Anaheim, Calif., has received small raises in her job as an accountant for a furniture manufacturer. But she has had to rely on her $70,000 salary solely to support her and her young adult son since her husband died after contracting covid–19 in 2021. And the homeowner’s association fees for their two-bedroom apartment have increased 60% in the past three years, from $275 to $438.

Rudd, 62, has stopped eating out and taking vacations, slimmed down his cable TV package to 20 channels and downgraded his cellphone plan. She turns a dinner of chicken strips into several meals, including lunch, and has no savings for emergencies. Even with the cuts, each fortnight has become a nerve-racking challenge.

“I’ll take a breather when I get my next paycheck,” she said. “Wow…I made it another two weeks…This is not where I expected to be at this age.”

In recent years, state and local authorities have launched more state-subsidized rentals housing program for middle-income Americans, Hermann said. But critics worry they could take resources away from needy, lower-income residents.

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

Website https://shopmaisonbouey.fr

Related Posts