There were a number of articles going around this week about a survey from PYMNTS in collaboration with LendingClub which found that 36% of Americans who earn over $250,000 per year reported living paycheck to paycheck in April 2022. You can download the report for free here. This was a shocking finding for many people because this income level is in the top 10% of household incomes, 3.7 times the national median household income (and even higher if the figure refers to individual income rather than household income). Many articles, such as this one by CNBC, tied this finding to inflation, which was near record highs in April at 8.3% for the previous 12 months. However, this is disingenuous based on the data actually shown in the report.
The finding that 1/3 of high income earners are living paycheck to paycheck has nothing to do with inflation. As you can see below, the proportion of consumers earning more than $100,000 who live paycheck to paycheck increased only 2-3% from a year ago, despite inflation almost doubling from 4.2%. In fact, the proportion of high earners living paycheck to paycheck has decreased from a high of 50.3% in November 2021, when inflation was 6.8%, to 42.4% in April. This suggests that increasing inflation is not resulting in an increased proportion of high earners living paycheck to paycheck.
Now you may be thinking based on this graph that inflation does seem to be resulting in an increased proportion of people who make less than $100,000 living paycheck to paycheck, and this could certainly be the case. However, I caution jumping to that conclusion. While this particular 1-year period shows an increasing trend, this is what the data looks like for all consumers for the full period the survey has been in use:
As you can see, the proportion of all U.S. consumers living paycheck to paycheck has remained relatively unchanged at about 60% since March 2020. The beginning of the previous graph (April 2021) happens to be at the lowest point measured (52.0%), making the ensuing increase look bigger. Just two months before then in February 2021, the proportion was about the same as the most recent measurement (62.1% compared to 61.3%). This suggests that normal variation in survey responses is more likely responsible for the month-to-month differences rather than inflation.
It’s also worth noting that the PYMNTS survey differentiates between people living paycheck to paycheck who have difficulty paying their bills and people living paycheck to paycheck comfortably. I would argue that the ones having trouble paying their bills are more aptly labeled as living paycheck to paycheck in the traditional sense. Those living comfortably may simply be allocating their funds to minimize the amount sitting in savings and actually have sizable funds in investment/retirement accounts.
If you compare the proportion of consumers living paycheck to paycheck who struggle to pay their bills broken down by income level from the first survey (first data on income levels provided: May 2021) to the most recent (April 2022), you can see that there has been little change for all income levels. Those making less than $50,000 who struggle increased slightly from 33.1% to 36.2%. Those making between $50,000 and $100,000 who struggle remained relatively unchanged at 18.2% and 18.6%. And those making more than $100,000 who struggle remained about the same from 12.4% to somewhere between 10-12% (income levels above $100,000 were only broken down further in the latest report). This suggests that there was little to no change in the proportion of people struggling and living paycheck to paycheck in the traditional sense over the last year, certainly not enough of an increase to suggest any effect of inflation.
And that brings me back to the shocking finding that 36% of those earning more than $250,000 are living paycheck to paycheck. The real number to focus on is the 12.3% of people living paycheck to paycheck with difficulty. 23.7% are still comfortable. What comfort means is subjective. They may be just getting by with enough money to reliably pay the bills but without any money to spare, or they may simply have little left over after contributing to retirement accounts and 529 plans for their children’s education (the Bureau of Labor Statistics classifies this kind of saving as expenditures). We simply do not know. There are likely those in high cost of living areas like New York City or Los Angeles who really are scraping by with expensive mortgages or rents, student loans, and high daycare costs. Others are blowing their money on expensive cars and luxury items. And still others are living within their means but dedicating most of their paychecks to saving for the future. This report does not provide enough detail for us to know what proportion fall into each category. What we do know is that 12.3% are struggling while making more money than most people could even dream of earning. And while that is concerning, it’s not really surprising. And it’s a much lower percentage than those making less than $100,000 (both including and not including whose who are comfortable).
Finally, I would like to acknowledge the potential effects of inflation on those living paycheck to paycheck or close to it. For someone already on a tight budget, a rapid increase in prices (without a corresponding increase in income) can be a tenuous situation, possibly resulting in taking on higher levels of debt to survive. However, based only on the data in this report, it surprisingly appears that the proportion of people living paycheck to paycheck is largely static irrespective of inflation. It is possible that those not living paycheck to paycheck are more conscious of their financial decisions and thus adjust to rising levels of inflation, protecting themselves from falling into the paycheck to paycheck group. More detailed data is needed to come to a firmer conclusion.
Cozy Nest Egg 