Paycheck to paycheck. The phrase usually refers to people who work — often very hard — but who just don’t ahead. With no savings, they live off each weekly or bi-weekly or monthly paycheck, and when that money is gone, there is nothing left. Until the next paycheck.
The paycheck to paycheck life is associated most often with the working poor, low-wage workers forced to work long hours but subsist on minimum wage, or barely above that level. But a grim new study from the Economic Panel at Washington’s Brooking Institute shows that it’s not only the poor — in fact, it’s not even mostly the poor — who live paycheck to paycheck, or “hand to mouth,” to use another expression that means the same thing.
The “Wealthy Poor”
The reality of American life for the past quarter-century is that simply maintaining what used to be the American Dream, a basic, middle-class existence, now costs so much that the country has a whole segment of “wealthy poor.” Or, more accurately, middle-class poor, who live paycheck to paycheck despite making good salaries and in many cases, owning assets such as a home and car.
The 65-page study, put together by economists at Princeton University and New York University and entitled The Wealthy Hand-to-Mouth, found that of the 38 million American households living paycheck to paycheck, a depressing two thirds would not qualify as “poor.”
These paycheck to paycheck households, for the most part, got that way by attempting to live a middle-class, suburban lifestyle — often for the benefit of their children. For example, middle class couples tend to settle in areas with good school districts, so that their children can receive the best possible education.
But houses in those districts inevitably cost more than elsewhere, and middle class couples find that just to pay the mortgage requires two incomes, and may not leave much left over to live on — and nothing left to save. So they live paycheck to paycheck.
More Middle Class Paycheck To Paycheck Families Than Poor
Of course, a paycheck to paycheck existence leaves families extremely vulnerable. If even one of the two incomes is lost to layoffs, or disability, or any other reason, the families face a crisis.
This Brooking Institute graph shows the proportion of paycheck to paycheck households that are poor, compared to those that are middle class.
Those middle class families, while living paycheck to paycheck, hold an average of $50,000 in assets. But their assets are not “liquid,” meaning they do not exist in the form of money that can be readily spent on living expenses. “Illiquid” assets include homes, cars and retirement accounts.
Policies To Help The Middle-Class Poor
What does this new information about paycheck to paycheck households mean? The study’s authors say that in times of economic need, government stimulus programs, which usually focus on the poor, need to expand to help the middle class as well.
Ultimately, such programs will be the only way that middle class families can escape the paycheck to paycheck trap.
Second Image: Brookings Institute