As inflation rises, more Americans are living paycheck to paycheck

Photo (c) Emir Memedovski - Getty Images

One-third of households earning $250,000 a year are saving nothing

Consumers who spend all of their money between paydays are in good company. A survey by PYMNTS shows that 61% of U.S. consumers were living paycheck to paycheck in April, 9% more than in April 2021.

Even more affluent Americans have little to nothing left over when their next paycheck arrives. The data shows that slightly more than 1 in 3 people earning $250,000 or more annually currently live paycheck to paycheck. 

The researchers found that these high-earning consumers handle their financial lifestyles in different ways. They are often associated with stronger credit scores and more intense credit usage and are likely to control their cash flows. 

Consumers earning more than $250,000 a year are 40% more likely to use financial products than consumers in the lowest bracket, and as many as 63% of them have a credit score exceeding 750. 

In other words, living paycheck to paycheck appears to be a lifestyle choice. If they have the money, they spend it.

On the other end of the scale, consumers with lower incomes who live paycheck to paycheck generally do so because of financial distress. They have fewer attractive credit options than wealthier consumers.

Vulnerable to the ravages of inflation

Those with lower incomes are also more vulnerable to the ravages of inflation. When the cost of food and energy rose sharply this year, lower-income consumers who live paycheck to paycheck had little option other than to cut spending or tap into expensive credit, such as credit cards.

A report from LendingClub shows things didn’t get much better last month, with more Americans turning to high-interest credit cards to make ends meet. Americans paid off billions in credit card debt during the first months of the pandemic in 2020 but since then have added to balances. The trend has picked up speed with inflation, which is at the highest rate in 40 years.

Unfortunately, the interest rate on credit cards has moved higher with the Federal Reserve’s policy of increasing interest rates. According to LendingTree, the average credit card interest rate is now over 20%.

When households live paycheck to paycheck, it means they aren’t saving any money. A recent Harris Poll shows inflation is eating up money that might normally go into a savings account.

The poll found that 39% of women said they are saving less money than they did last year. Another 40% of hourly workers with a household income of less than $100,000 said they are saving less than last year or not at all.

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