The Majority of Americans Live Paycheck to Paycheck and They Are Not All on Minimum Wage

According to Reality Check: The Paycheck To Paycheck Report, 54% of Americans define themselves as living paycheck to paycheck. This may not be that surprising, given the low federal minimum wage, and the fact that a large section of American society is classified as low-income, but not all those who are struggling are on low incomes. It’s becoming surprisingly common to live paycheck to paycheck in spite of a relatively high household income. Let’s look at some of the data the report uncovered.

Those living paycheck to paycheck aren’t all poor

The majority (53%) of those who earn between $50,000 and $100,000 annually still live paycheck to paycheck. This income bracket is comfortably within the parameters of what is theoretically needed to live a nice life in most US cities. Yet people in this income bracket are still spending the majority of each monthly paycheck, and not managing to save or invest a substantial amount. What’s more, around 40% of those earning more than $100,000 still claim to live paycheck to paycheck.

Those living paycheck to paycheck aren’t all struggling

The report splits those who define themselves as living paycheck to paycheck into those who are struggling to pay bills and those who aren’t. 20.9% of those surveyed said they struggled to pay bills, which leaves 33.1% of people in the position of being comfortably able to pay their bills, but still finding themselves with no money left at the end of the month.

Stimulus payments have helped

Perhaps surprisingly, things have improved during the pandemic. 66% of consumers were living paycheck to paycheck in March 2020, before the instigation of stimulus payments, compared to 54% in the summer of 2021. This indicates that when you give people ‘free money’ in uncertain times, many of them will save that money rather than spending it, perhaps realising that now, more than ever, an emergency fund might come in useful.

So why am I still struggling on a high income?

It may seem illogical but there are obvious reasons people still struggle on a high income. High income earners are more likely to have a college degree, which almost invariably means they have student debt. Sensibly enough, consumers with student debt often try to pay it down before saving, so will purposely leave themselves little spare money each month. Other types of debt that can impact all types of Americans, such as medical debt, are often treated the same way.

Equally important, though, is lifestyle inflation, meaning that those with higher incomes often have bigger houses, newer cars and much higher expenses overall than those on lower incomes. As a personal finance writer, I fully accept you can’t ‘personal finance’ yourself out of extreme poverty. So six-figure earners, I’m talking to you, now. If you’re earning over $100,000 annually and still struggling, you’re almost certainly a victim of lifestyle inflation. That’s what you need to address first. Yep, even before complaining about how Boomers had it so much easier. (In some ways they did, but in others they didn’t.)

Studies never tell the full story

One last thing to remember is that studies never tell the full story. It’s worrying that so many people in the richest country on earth are struggling to make ends meet, and there are systemic problems and cultural issues that contribute to it, but it’s worth looking a little closer at the data too. There are times in life when expenses are sky high, and times when they’re much lower.

70% of millennials live paycheck to paycheck, which is a larger share than any other generation. This may be worrying if you’re a millennial, but it’s important to realise that this is the generation most likely to have dependent children right now, which is often one of the biggest lifetime expenses, for anyone. Millennials are also more likely to be deep in the expenses of home ownership, as opposed to Gen Z who haven’t bought a home yet, Gen X who are coming to the end of their mortgage payments, or Boomers who have now paid their home off.

These are generalisations and assumptions, of course, but go some way to explain why statistically, millennials are struggling more than other generations. High inflation and stagnant wages don’t help, but there’s always more to generational differences than there appears to be.

If you’re struggling to make ends meet on a six figure salary, address lifestyle inflation first.

The rising cost of living, the insane cost of education, and other social factors will influence your finances. But our crazy consumerist society will impact them more. If you’re a high earner who always has too much month left at the end of your money, opting out of extreme consumerism is the first step to financial freedom.

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