1 in 3 Americans earning $250,000 or more say they live paycheck after paycheck
It’s rich: Even people earning well over six figures say it can be hard to stretch their money.
To be exact, 36% of Americans who take home a quarter of a million dollars or more say they run out of money again on payday, according to the joint survey of 4,048 respondents by the payroll company. data and information Pymnts and the LendingClub Corporation. More than 40% of those earning at least $100,000 say the same.
The overall picture is darker. The report found that 61% of all Americans were living paycheck to paycheck in April 2022. In other words, nearly two-thirds of the US population, or about 157 million people, have little or nothing left at the end of the month – and that’s a nine percentage point increase from April 2021. And most people earning less than $50,000 (just under 80% of they) live paycheck to paycheck.
“Low- and middle-income households are the hardest hit by inflation,” Greg McBride, chief financial analyst at Bankrate.com, told MarketWatch. “And we see that in the increased debt levels and reduced savings levels as households try to stretch their money further. Even with low unemployment and robust wage gains, that hasn’t been enough to keep pace with rising costs at the fastest rate in four decades.
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All of the study participants who reported living paycheck to paycheck were also asked if they got by “with difficulty” or if they were “comfortable”. Again, those earning less struggle more: 19% of middle-income respondents (earning $50,000 to $100,000) and 36% of low-income respondents (earning less than $50,000) reported having difficulty paying their bills each month.
In comparison, a much smaller percentage of people earning more than $100,000 (between 10% and 12%) who reported living paycheck to paycheck said they had problems paying their bills, but the most said they were always “comfortable”.
“Earning a quarter of a million dollars a year is more than five times the national median and is clearly high income,” Anuj Nayar, LendingClub’s financial health officer, said in a statement. “The fact that a third of them are living paycheck to paycheck should surprise you.”
So what’s going on here?
Bankrate’s McBride noted that it’s important to consider what it means to “live paycheck to paycheck.” “Defining it can be in the eye of the beholder,” he said.
For example, high earners who say they live paycheck to paycheck may use their disposable income to contribute to retirement savings or college funds. So if these deductions are taken out of their paychecks before the balance reaches their bank account then they may feel like they are earning less than they are because it may leave little or nothing after payment of other expenses. But in fact, they have a safety net that someone making less than $50,000 probably doesn’t have.
“If you’re saving through payroll deductions for retirement and emergencies, I wouldn’t define that as ‘a living paycheck,’ because there’s a cushion for any disruption in income,” he said. declared. “If you’re really living paycheck to paycheck, there’s no cushion. In those cases, if the paycheck stops or is interrupted, then something isn’t being paid.
““If you’re really living paycheck to paycheck, there’s no cushion. In these cases, if the paycheck stops or is interrupted, then something is not being paid.”
But that brings us to another important distinction: gross versus take-home pay. Someone making $250,000 a year probably doesn’t take all that home. “These [income] the numbers are always presented in terms of gross pay, but what pays the bills is net pay,” McBride said.
And high-income households that live in high-cost markets have a larger gap between gross pay and take-home pay, especially after federal, state and local taxes weighed on the bottom line, he said. he declares.
Happens to location, location, location: A salary of $100,000 or $250,000 doesn’t stretch that far in an expensive metropolitan area like New York or San Francisco. Indeed, many high-income earners sharing their annual budget on Reddit have revealed how their high rent or mortgage payments, as well as skyrocketing childcare and utility costs in expensive cities, have made skyrocket their cost of living. MarketWatch readers had a lot to say about this popular 2019 story, which showed how a $350,000 salary in an expensive city barely qualified as middle class.
“In high-cost markets, everything costs more,” McBride said. “The cost of child care is likely to be higher because the cost of renting that child care center is higher.”
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But he added that we can’t gloss over the fact that lifestyle drift and “living big” are likely playing a role in high-income households running out of money when the next payday comes. arrived. “Households making over $250,000 and living paycheck to paycheck, they probably don’t drive a used Toyota Corolla,” he said. And plenty of data suggests people are spending more on subscription services like Netflix NFLX,
takeout and delivery apps like Uber Eats UBER,
and online shopping sites with one-click payment like Amazon AMZN,
than they realize.
Brian Marks, a lecturer in the Department of Economics and Business Analysis at the University of New Haven, also suggested that wealthy people may be living paycheck to paycheck because they use debt and credit differently from those who earn less.
“People with higher incomes spend more, in general, and can take on more debt assuming that [their] the income will continue to increase, so they invested in a house and took advantage of it in the hope that they will have these salary increases, ”he told MarketWatch.
They use credit card debt to cover bills and purchases and “floating” money, for example, because they can bank on their next salary or future bonuses to pay that off. So once their check comes in, a lot of it goes to paying off that debt. And that idea is consistent with data from the new Paycheck Survey, which found that people earning more than $250,000 were also more likely to have made a recent credit card or personal loan payment than those earning more than $250,000. earning $50,000 or less.
Finally, the general financial literacy skills of Americans could also be a factor. Financial literacy has plummeted since 2009, according to a study by the FINRA Investor Education Foundation, and a lack of this knowledge could lead to financial mistakes, including for those earning $250,000 and above.
“A lot of people would say that [$250,000] that’s a lot of money. That’s a lot of money,” Marks said. “But you have to peel everything.”