Even with recent improvements, many Americans continue to struggle financially. According to a new LendingClub study, 64% of American consumers claim they at least periodically live paycheck-to-paycheck while 46% live that way regularly.
The New Reality Check report by digital marketplace bank investigates why consumers struggle financially and what changes have been implemented to improve their financial stability. Here are some key findings:
Cost of Living
Cost of Living refers to the expenses required for maintaining a certain lifestyle within an area. This can include items like housing, food, clothing, taxes and healthcare – plus inflation can cause these items to increase more quickly than usual – increasing overall living costs drastically. Mortgage payments or utilities payments that increase by more than expected could significantly alter your monthly budget more than paying additional groceries would.
Inflation isn’t just making living more expensive in certain cities; it’s also taking its toll on employee paychecks. According to LendingClub’s survey, an unprecedented number of Americans – both high- and low-income earners alike – are living paycheck-to-paycheck; 8 out of 10 consumers who make less than $50,000 annually reported being unable to cover bills until receiving their next pay check; this number increased sharply from 42 percent reported living this way during prior research studies.
One reason could be that wages haven’t kept pace with rising prices, placing even well-paying jobs under strain. According to the Bureau of Labor Statistics, consumer price index for all items rose 6.5 percent year over year in December 2017 — far exceeding average annual inflation rates in the US.
These higher prices will likely continue to put strain on employee paychecks, especially with interest rates on the rise and unemployment remaining elevated. Many Americans are feeling financially stretched thin and turning to savings accounts in order to cover basic expenses.
While many factors contribute to living paycheck-to-paycheck, one key one is a failure to save for emergencies. Kowalik noted that an increasing number of her clients find it hard to save during periods of financial strain; indeed, 40 % of households don’t have enough saved to cover three months without income at poverty line levels.
Income
A paycheck may not cover every expense, but it should provide enough to meet necessary living costs – including rent or mortgage payments, utilities, car loans/leasing agreements, credit card debt payments and food costs. How much a person needs in order to be comfortable depends heavily upon where they live and their family situation – for instance a single mom may require making around $237,000 annually while a four-person household would likely require up to $502,000 each year in order to be financially comfortable.
However, many Americans do not earn enough to cover their living expenses. According to a 2022 Bankrate survey, 64% of American report living paycheck to paycheck at least occasionally and 46% say this is consistent – this compares poorly with last year when these figures stood at 53% and 62%, respectively. One reason might be inflation – according to data provided by Bankrate survey housing costs have increased while income has not kept pace – or unforeseeable financial obligations or lifestyle creep (consumers spending more than they earn).
While people of any income can live paycheck-to-paycheck, low-wage workers face an especially great risk. Indeed, 8 in 10 consumers who make less than $50k annually report being unable to cover their bills until their next paycheque arrived; although this proportion drops slightly for those making between $50k and $100k annually, but remains high nonetheless.
Paycheck-to-paycheck rates tend to be higher in urban areas than rural and suburban ones. This could be attributed to factors like high housing costs, debt levels and spending on non-essential items – whatever their cause, many people are struggling without enough room in their budgets for savings – that could leave them unequipped for unexpected expenses or job loss.
Debt
Paying for essentials such as food, housing, utilities and transportation often consumes the bulk of a person’s paycheck. Without enough left over to cover unexpected expenses it can become easy to fall behind on bills with late fees, interest charges and legal complications piling up quickly. Credit cards or payday loans may be used as temporary fixes but often result in long-term debt that is difficult to escape from.
Many Americans are living paycheck to paycheck as their costs of living continue to escalate and wages don’t keep pace with inflation. Even those with well-paying jobs may struggle if their monthly expenses exceed what they earn; increasingly more individuals are working multiple jobs just to cover all of their regular expenses; this lifestyle can be especially taxing when caring for children as they must factor child care and education expenses into their budgeting calculations.
Paycheck-to-paycheck living can be challenging for any income level, with those on lower incomes more prone to living this way than others. CareerBuilder conducted a recent study which revealed that 78% of those making under $50,000 per year resided within this bracket; 49% of those making six figures claimed living paycheck to paycheck as well due to unexpected expenses or lifestyle creep.
Many Americans are living paycheck-to-paycheck due to an inability to save. With only 52% of workers having an emergency fund of three months’ income or less in their bank accounts – the problem worsens for millennials with 64% failing to do so.
Though there may be several reasons for living paycheck-to-paycheck, this cycle can be broken with personal accountability and spending control. The first step should be assessing your current financial state to identify areas in which spending can be curtailed or costs reduced – common examples may include switching providers for home internet or cell phone service or negotiating for better rates from cable service companies.
Savings
No matter their income level, living paycheck to paycheck can be challenging. Many individuals lack enough savings for emergencies so must spend more than they earn; leaving them vulnerable when something unexpected comes up such as medical emergencies or job loss.
If you find yourself in this situation, it might be beneficial to review and modify your spending habits as well as look for ways to increase income so as to build savings.
One way to reduce expenses is to shop around for better deals on household goods. Comparison shopping websites can help you get the best price on everything from food to utilities, giving you more money in your emergency fund. By cutting unnecessary spending and searching out discounted options, comparison shopping can help you secure better savings than you previously would have had.
While inflation has subsided recently, Americans continue to face rising living costs. More Americans report living paycheck to paycheck at least occasionally according to LendingClub’s report – nearly 40% compared with 37% from last year! This represents an improvement compared to earlier years.
Even those with above-average incomes often find themselves in financial difficulty due to high levels of consumption. Debt might be an issue; while lifestyle creep is another potential risk.
Lifestyle creep is when a person purchases more clothes or furniture when earning more money, which can quickly drain their savings account. Furthermore, health care costs and housing prices continue to escalate, leading many Americans to live paycheck-to-paycheck than before – though many don’t save enough to cover emergencies; therefore this trend could likely be reversed with hard work.
