Many people may not think of households with six-figure incomes as living paycheck to paycheck, but a new Bank of America analysis reveals that about 20% of US households earning over $150,000 a year are in that situation. The analysis defines these households as those who spend more than 95% of their income on necessities like gas, food, utilities, internet, transportation, child care, and housing.
Interestingly, households earning less than $50,000 a year have the highest proportion of people living paycheck to paycheck, at around 35%. However, this percentage decreases slowly as income levels rise. Even households earning between $50,000 and $75,000 have only slightly higher rates of paycheck to paycheck living compared to those earning over $150,000.
One possible explanation for this unexpected trend is that higher-income households may have larger expenses, such as bigger mortgages, insurance costs, property taxes, and utility bills. Additionally, some higher-income individuals may be taking out larger mortgages with the expectation of future raises or promotions. The analysis also suggests that households with younger children may face more financial stress due to childcare expenses, which could decrease once the children reach school age.
It is important to note that the analysis did not differentiate between different types of necessity spending. For example, spending on elite preschools was still considered a necessity in the analysis. This highlights the ongoing impact of inflation on consumers across all income levels. Despite a slowdown in the rate of price increases over the past two years, Americans are still paying about 20% more for goods and services compared to pre-pandemic levels in February 2020.
Furthermore, wage growth has also slowed as the labor market has cooled. Average hourly wages were up 4% in September compared to a year ago, a decrease from over 5% growth seen two years prior. This combination of rising expenses and stagnant wage growth is putting financial pressure on households across the income spectrum.
In conclusion, the Bank of America analysis sheds light on the financial challenges faced by households of varying income levels. It serves as a reminder that living paycheck to paycheck is not solely a low-income issue and that economic factors like inflation and wage growth impact individuals across the board. As the cost of living continues to rise, it is important for all households to carefully manage their finances and prioritize essential expenses to achieve financial stability.
