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Wednesday, November 6, 2024

BofA: A quarter of U.S. households live paycheck to paycheck

Living paycheck to paycheck not just for low earners

Living paycheck to paycheck is growing in the U.S., and it’s not just among people earning the least.

That’s according to a recent Bank of America Institute analysis of spending by customers of the Charlotte-based bank. It found that 26% of households spend more than 95% of their income on necessities covering gasoline, food, utilities, internet, public transportation, childcare and general retail spending. That’s an increase from 2019.

The analysis also looked at households spending more of 90% of their income on necessities. Around 30% of households fell into that broader category.

Senior economist David Tinsley and his team at the institute determined that around 35% of households with incomes below $50,000 a year are living paycheck to paycheck, up from 32% five years ago.

“Naturally, lower-income households are more likely to struggle financially, but even some higher-income households appear to be spending nearly all they earn,’’ the analysis said. “More surprising is that the proportion of households appearing to live paycheck to paycheck falls only slowly as incomes rise.’’

The analysis found that about 20% of households earning more than $150,000 appear to be saving very little money. It reasoned that higher-income earners “may have bought larger, more expensive homes and consequently have bigger mortgages.’’

The analysis raised the possibility that as “household incomes rise, some households may have more varied sources of income that are hard to capture – such as cash from sales of equities paid into brokerage accounts.’’

The institute explained it determined its estimates“ by considering a sample of households that appear to have their primary banking relationship with Bank of America, so we are confident we can understand a large part of their spending.’’

Looking at different generations based on age, the analysis determined that the percentage of households spending 95% of income on necessities “tends to rise with the age of the generation.’’

The study noted that the percentage of paycheck-to-paycheck spending climbed from Generation Zen  (people born after 1995) to millennials (1978-1995) to Generation X (1965-1977) to baby boomers (1946-1964).

The proportion of baby boomers living paycheck to paycheck was nearly 30%. Then, the percentage declined for the final age group, namely people born before 1946.

By geographic region, the analysis found that the South Atlantic Census division, including North Carolina, has the highest percentage of paycheck-to-paycheck households, at around 28%.

Separate research found that an even higher percentage of Americans “perceive themselves to be in the ‘paycheck to paycheck’ camp.’’

In the bank’s third-quarter Market Landscape Insights Study, almost half of respondents agreed strongly or somewhat strongly with the statement that they’re living paycheck to paycheck. The percentage of people holding that view has apparently been “rising over at least the last two years (and) likely reflects the impact of higher consumer prices on people’s perceptions and experiences of their finances,’’ according to the institute.

On a brighter note, the institute predicted that “as overall inflation moderates, some of the spending pressures on paycheck to paycheck households could ease.’’

 

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