close
close

Apre-salomemanzo

Breaking: Beyond Headlines!

    • Why some Americans with higher incomes also live paycheck to paycheck
    aecifo

    Why some Americans with higher incomes also live paycheck to paycheck

    Umito Posted on

    play

    Low-income households aren’t the only ones living paycheck to paycheck.

    A growing share of middle- and high-income families spend almost their entire salary on basic necessities and have little or nothing available 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 cite historical context extensively peak inflation triggered by the pandemic, particularly the surge housing coststhat devour the incomes of many Americans, including the richest.

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

    According to him, this trend could slow down consumer spendingwhich accounts for 70% of economic activity and has been fueled by higher-income Americans in recent years. It also raises thorny public policy dilemmas, such as whether city or state governments should subsidize the housing costs of middle-income renters.

    How many people live paycheck to paycheck?

    So far this year, 24% of middle-income households earning between $51,000 and $75,000 a year were living 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 American Institute. Among those whose salaries and other income total between $75,000 and $100,000, 23% are just getting by, up from 19% in 2019. For those earning between $101,000 and $150,000, 22% spend almost all their money on basic products, compared to 18%.

    Even 20% of relatively wealthy households with incomes above $150,000 are content with having very little money for savings or for fun activities like vacations or going to the movies.

    Of course, the challenges of low-income families with incomes below $50,000 are much greater. Thirty-six 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 after paying rent and utilities, compared with a few thousand dollars for middle-income people, the report found. Joint Center for Housing Studies at Harvard University.

    The Bank of America Institute analyzed cash flows in and out of a significant sample of their tens of millions of consumer checking or savings accounts to determine whether more than 95% of household income is spent on products basic necessities such as food, gasoline, utilities, Internet services. and childcare.

    In surveys, the institute found that nearly half of Americans believe they live paycheck to paycheck, but many likely consider discretionary spending such as dining out to be essential purchases, it said. Tinsley. 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 of all income levels in recent years. Overall, consumer prices have increased by almost 20% since the start of 2021 and food products have increased by 21%, according to the Consumer Price Index. But housing costs have risen even more and represent a significant portion of household budgets.

    Rents rose 23% during that period, according to CPI figures. And average prices for single-family homes jumped 38 percent, according to the S&P Case Shiller National Home Price Index. Related expenses have also skyrocketed, with homeowners insurance climbing an average of 65% from pre-pandemic rates and property taxes rising 25%, according to Oxford Economics.

    And larger homes purchased by people with higher incomes come with higher insurance, tax and utility costs, Tinsley said.

    Why has the cost of housing increased in the United States?

    In the early days of COVID–During the Covid-19 pandemic, many Americans fled densely populated cities and bought larger, more expensive homes in the suburbs, driving up their prices as well as rents. Meanwhile, builders weren’t building enough new homes or apartments to ease price pressure, said Alexander Hermann, a senior research associate at Harvard’s Joint Center for Housing Studies.

    In 2022, 40.7% of middle-income renters earning between $45,000 and $74,999 were “cost-burdened,” meaning they spent more than 30% of their income on rent and utilities, according to the center. That’s up from 35.3% in 2019. Twenty-seven percent of homeowners also faced high costs — with 30% of their income going toward mortgages, taxes and insurance — up from 26%.

    Similarly, in 2022, 16.3% of all households, including renters and owners, earned between $75,000 and $99,999, and 10.2% earned between $100,000 and $124,999. This represents 15% and 9.6% of these income groups, respectively, who were stressed in 2019.

    Households facing high costs typically have to forgo other essential goods, such as food, health care or school supplies, Hermann said.

    Has wage growth kept pace with inflation?

    Many Americans have kept pace with rising 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 this has not been the case for other workers, like higher-paid employees in technology and finance, who have been hit by mass layoffs due to rising interest rates in the over the last two years.

    “I did it for two more weeks.”

    Elizabeth Rudd, of Anaheim, Calif., got small raises in her accounting job at a furniture manufacturer. But she has had to rely exclusively on her $70,000 salary to support her young adult son since her husband died after contracting COVID.–19 in 2021. And the homeowners’ association fees for their two-bedroom condo have increased 60% over the past three years, from $275 to $438.

    Rudd, 62, stopped eating out and taking vacations, cut his cable TV package to 20 channels and downgraded his cell phone plan. She turns a dinner of chicken strips into multiple meals, including lunch, and has no savings for emergencies. Even with the cuts, each two-week period became an agonizing challenge.

    “I take a breath when I get the next paycheck,” she said. “Whew… I lasted two more weeks… This is not where I expected to be at this age.”

    In recent years, state and local governments have initiated more publicly subsidized rentals. housing programs for middle-income Americans, Hermann said. But critics worry the project will divert resources away from low-income residents most in need.

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

    Umito
    View all posts

    You Might Also Like