Low-income Americans are no longer the only ones living paycheck to paycheck. High earners also struggle to balance the family books.
According to a recent LendingClub report, as of August, 45% of Americans making six figures were living paycheck to paycheck, up from 38% a year ago.
This is a shocking finding for two reasons. First, America is one of the wealthiest economies in the world. So one would expect people to be able to afford to save money instead of barely making ends meet on what they earn. And two, the living wage should be limited to low-earning Americans, since the money they earn is barely enough to cover living expenses, but not to high-wage earners.
The obvious reason behind this is rising inflation, which is at a 40-year high, squeezing family budgets in almost every income bracket. “Living paycheck to paycheck means you don’t have enough money to carry over to the next month,” Lyle Solomon, principal attorney at Oak View Law Group and a personal finance expert and consultant, said in an email to International Business Times. “Undoubtedly, the current economic scenario has made this situation even more stressful.”
Marlo Richardson, a serial entrepreneur, sees no difference between low and high incomes in an inflated cost of living environment. “It doesn’t matter if you’re a minimum wage worker or a six-figure salary,” he said in an email to IBT. “People spend their money according to what they make.”
Ari Parker, the author of a best-selling Medicare book, believes the reasons even wealthy Americans are living paycheck to paycheck extend beyond the recent rise in inflation to a huge, often unavoidable increase in health care costs . “It can be a significant chunk of your income, even if you’re making six figures,” he told IBT. “And like the cost of groceries, gas, rent, health care can be greatly affected by inflation.”
Parker then cited a study by The Kaiser Family Foundation that found prices rose faster than inflation for half of all prescription drugs covered by Medicare Part D in 2020. “For some people, the inflation means that their drugs, deductibles, coinsurance amounts and The limited limits cost them more,” he said. “Not surprisingly, this leads even six-figure earners to live paycheck to paycheck.”
Solomon cited debt, student loans and mortgage payments, which take up a large portion of the monthly salary, as the top factor behind the financial plight of high-income earners. “Even people who earn $100,000 or more may not have much after paying off student loans, mortgages and other fixed living expenses to keep the lights on, especially if they live in a high cost of living area,” he said.
Robert Johnson, Ph.D., professor of economics at Creighton University’s Heider College of Business, believes that high-income Americans struggle to balance the family’s books because they make their spending increase commensurate with their new salary. “For example, people move to a bigger apartment or buy a more expensive car or house to reward themselves for getting the raise,” he told IBT. “They can’t improve their financial situation because they spend everything they do.”
And it is at the whim of inflation. It usually runs faster than earnings, making it difficult for these people to maintain their lifestyle.
Johnson advised people to invest the money from a raise effectively instead of rushing to spend it on an upgraded lifestyle. “So, continue to live the same lifestyle you had before you got a raise and invest the difference,” he said.