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More than 25 million middle class Americans living paycheck to paycheck

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Middle class & living paycheck to paycheck

More than 25 million middle class Americans are living paycheck to paycheck.

They have decent salaries. Many own homes and have retirement accounts. But they don’t have a lot of savings or readily accessible funds, according to a recent economic study presented by the Brookings Institution.

About one-third of American households live “hand-to-mouth,” meaning that they spend all their paychecks. But what surprised the study authors is that 66% of these families are middle class, with a median income of $41,000. While they don’t have liquid assets, such as savings accounts or mutual fund holdings, they do have homes and retirement accounts, with a median net worth of $41,000.

“We don’t expect them to be living paycheck to paycheck,” said Greg Kaplan, study co-author and assistant professor of economics at Princeton University.

Poor hand-to-mouth households, by contrast, typically have incomes of $21,000 and no assets. Families that don’t live paycheck to paycheck have incomes of $51,000 and assets of $116,000.

Those living paycheck to paycheck have a tougher time weathering income shocks, such as illnesses or bouts of unemployment. The study found that they have to cut back their spending far more than those with a reserve they can tap more readily.

Just why these middle class households opt not to sock away cash in the bank or stock market isn’t clear. One explanation, Kaplan says, is that they think that housing and retirement funds offer better returns so they are willing to forgo having a cash cushion.

“The return is so high that it makes it worthwhile to live paycheck to paycheck,” said Kaplan. In a separate study, he found that people who put their money into these illiquid assets can consume more over the course of their lives, though they don’t have a smooth pattern of spending.

Many Americans want to own their home, though they know that they won’t have a lot of spending money, experts said.

“The typical homeowner knows they are making a big investment in their house, which soaks up a lot of their disposable income but can also be their primary asset when they retire,” said Mark Aguiar, an economics professor at Princeton.

This financial plan bucks conventional wisdom, though. Most financial planners recommend people sock away three to six months of expenses in an emergency fund, though few actually do.

Most Americans, however, aren’t living hand to mouth for long. Middle class families are typically in this situation for 3.5 years, while poorer households lack a cash cushion for 4.5 years.


  • Chucky

    This is exactly why the poor are suffering and the middle class people are struggling. We need tax reform like never before. The money is just not there to fund all of the social welfare programs and give tax credits to people who don’t pay taxes or pay reduced taxes. Further, everyone should be paying their part. Too many rich people and corporations get huge tax breaks while the middle class and poor struggle to pay what they owe. Just impose a flat tax… if everyone paid a flat tax on their income, we all would likely pay a lower percentage.

    • rembrandt

      Why don’t we just cut the social programs that some people think are a right?
      There are jobs available, however the nanny state gives many.lazy lay abouts a disincentive towards work.
      Eliminate the social programs, eliminate the income tax, increase sales taxes to cover ESSENTIAL services and everyone will end up with more money in their pocket.
      Obamaphones are not essential, daycare for children who’s parents don’t work is not essential.
      Frankly it’s unfair of the government to tax those of us that work REAL Jobs to pay the way for those whose only commitment is to vote for their gravy train conduit every 2 years.

  • jeremy

    it is mostly that everything is so expensive now. after paying so much for housing, power, food, cell phones, cable, internet, insurance, taxes, gas, etc., there just isn’t any money left to put into savings.

    • rembrandt

      Do we need cell phones, internet,cable?
      How does it happen that a woman on welfare with 5 kids has a 52 inch plasma tv , an iphone, every gaming system known to man, cable , internet, laptops( plural) and wastes more food in a month than most families would eat is considered poor.
      These NEEDS are making the rest of you broke.
      You’ve been lied to.
      You’ve been conditioned by the media into feeling sorry for these people when they have more than you.
      Don’t say anything about it though, because if you do, you’re a racist.
      Most of you are just lemmings going over the cliff. Controlled by the media ,tricked into thinking you NEED an iphone so they can anesthesize you 24/7.

  • Thomas Christopher

    Wasn’t this bad when Bush was prez, for me anyway. With today’s minimum wage job working only 25-30 hours a week, higher health insurance, higher everything, I sure miss my $15.50/hour job, cheap/excellent health care, and cheaper utilities/groceries when W was in office. Oh well, elections have consequences, don’t they?

  • Baxter

    We are moving closer and closer to a divide in this country that is not Democrat vs Republican but instead the “Haves and the Have nots”
    Do you not remember how hard a fight was put up just before the 1st of the year to keep the income level and corresponding tax rate in favor of the rich ?
    What was claimed to be a “win over the President and higher taxes” in reality was just keeping more money in the pockets of the rich . And as always its the middle class that pays the brunt of the bills.

  • B

    It would be nice if all of us could have a retirement fund, a college fund, an emergency fund, a vacation fund, a home, life insurance and make less than 50000 a year. We don’t want to give up our cell phones, tv, entertainment etc. to have just one of these funds. One emergency would wipe out the fund and then what? It would take a decade to replenish just one fund.

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