More than 25 million middle class American families 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.
SOURCE: Tami Luhby