Households Earning Over $150,000 Living Paycheck to Paycheck
A report from Bank of America has shed light on the surprising number of households living paycheck to paycheck (PTP), including those with high incomes. The report reveals that it's not just low-income households struggling to make ends meet, but also those earning over $150,000 per year.
Understanding Paycheck to Paycheck Living
The term 'living paycheck to paycheck' is often used to describe individuals or households that spend almost all of their income, leaving little or nothing for savings. According to this definition, over 40% of respondents in the Bank of America survey admitted to living PTP.
The Bank of America report, however, offers a more specific definition of PTP: "households where necessity spending is more than 95% of their household income, leaving them relatively little left over for 'nice to have' discretionary spending or saving." Even by this stricter definition, the percentage of PTP households is shockingly high.
What's more surprising is that the number of households living PTP decreases only slightly as incomes increase. Around 20% of households with incomes above $150,000 also appear to be living PTP. This could be due to higher-income households having larger mortgages due to more expensive homes, and therefore higher insurance costs, property taxes, and utility bills.
Generational Differences in Paycheck to Paycheck Living
The report also reveals generational differences in PTP living. Younger generations, such as Zoomers and younger millennials, are often priced out of homeownership and forced to rent. This could be a contributing factor to their PTP living.
On the other hand, baby boomers, who are now at retirement age, are also living PTP. This could be due to a variety of reasons, including having many assets and being prepared for the future, or being completely unprepared for retirement.
The Impact of Housing Costs
Housing costs play a significant role in PTP living. Insurance and property taxes have risen significantly, and the home ownership rate is only 35 percent for 25–30-year-olds, compared to 66 percent across all ages according to the Census Bureau.
The Federal Reserve Bank of San Francisco suggests that the Sun Belt area is particularly affected by the hidden costs of homeownership, such as climate change. This could be contributing to the high number of households living PTP.
The Role of the Federal Reserve
The Federal Reserve has been criticized for its role in the housing market, with some accusing it of repeatedly making the same mistakes. The Fed's policies, such as quantitative easing and mortgage security purchases, have driven interest rates to zero and mortgage rates below 3 percent.
This has benefitted existing homeowners who have been able to refinance their mortgages, putting extra money in their pockets each month. However, it has also created a divide between the haves and the have-nots. The have-nots are those who want to buy a home but are priced out due to inflation, while the haves are trapped in their homes, unwilling to trade their low-interest mortgages for higher ones.
The Case for Ending the Federal Reserve
The report suggests that the Federal Reserve's policies have contributed to the high number of households living PTP. It argues that the Fed has created a dual-state economy of the haves and the have-nots, and that it is time to consider ending or reigning in the Fed.
Bottom Line
The surprising number of high-income households living paycheck to paycheck highlights the complex nature of financial stability. It underscores the impact of housing costs and the role of the Federal Reserve in shaping the economy. What are your thoughts on this issue? Share this article with your friends and join the conversation. Don't forget to sign up for the Daily Briefing, delivered every day at 6pm.
