Living paycheck to paycheck is increasingly common, even among middle- and higher-income families. According to the Bank of America Institute, many households are spending nearly all their earnings on essentials, leaving little to no room for savings or discretionary spending.
Experts attribute this trend primarily to the significant inflation surge prompted by the pandemic, especially in housing costs, which have taken a toll on a wide range of Americans, including those with higher incomes.
“Higher-income individuals often have larger homes, leading to higher mortgage payments and related expenses that can offset their larger paychecks,” explained David Tinsley, a senior economist at the Bank of America Institute.
This shift could have implications for consumer spending, which accounts for 70% of economic activity and has been driven in recent years by wealthier Americans. It also raises complex policy questions, particularly regarding whether governments should provide housing assistance to middle-income renters.
Who’s Living Paycheck to Paycheck?
Recent data shows that 24% of middle-income households earning between $51,000 and $75,000 are living paycheck to paycheck, an increase from 23% last year and 20% in 2019. Among those earning $75,000 to $100,000, 23% are struggling, up from 19% in 2019. Additionally, 22% of households earning between $101,000 and $150,000 report the same issue, rising from 18%.
Even 20% of households with incomes above $150,000 are finding it difficult to save or afford discretionary activities such as vacations. In contrast, the struggles are even more pronounced for lower-income families: 36% of those earning under $50,000 are living paycheck to paycheck, up from 32% in 2019.
The Bank of America Institute analyzed the cash flow of millions of consumer accounts to determine spending habits, finding that many Americans mistakenly consider discretionary expenses as essentials.
Rising Cost of Living
Inflation has affected all income levels, with overall consumer prices rising nearly 20% since early 2021. Grocery prices have jumped 21%, while housing costs have surged even more, comprising a significant portion of household budgets. Rent has increased by 23%, and average single-family home prices have soared by 38%.
Higher-income individuals are particularly affected, as larger homes incur greater costs for insurance, taxes, and utilities.
Why Is Housing So Expensive?
The COVID-19 pandemic led many to move from crowded urban areas to larger homes in the suburbs, driving up prices. Meanwhile, there hasn’t been enough new housing construction to alleviate this demand, according to Alexander Hermann from Harvard’s Joint Center for Housing Studies.
In 2022, 40.7% of middle-income renters were “cost burdened,” spending more than 30% of their income on rent and utilities, up from 35.3% in 2019. Additionally, 27% of homeowners faced the same issue, spending over 30% of their income on mortgages and related expenses.
Wage Growth vs. Inflation
While many Americans have experienced wage growth that outpaces inflation in the last 18 months, this isn’t the case for everyone. Some higher-paid workers, particularly in tech and finance, have faced layoffs due to rising interest rates.
Personal Stories of Struggle
Elizabeth Rudd from Anaheim, California, shares her experience. Despite small raises in her accounting job, her salary of $70,000 must support her and her young adult son after the death of her husband from COVID-19 in 2021. Her homeowners association fees have risen 60% over three years, putting further strain on her finances.
Rudd has cut back on dining out and vacations, reduced her cable package, and has no savings for emergencies. Each paycheck is a source of anxiety: “I take a breath when I get the next paycheck. Whew… I made it another two weeks. This isn’t where I expected to be at this age.”
As state and local governments introduce rental assistance programs for middle-income families, there are concerns that resources could be diverted from those who need them most. “These programs should complement low-income initiatives, not replace them,” Hermann cautioned.
