The majority of Americans consistently spend most or all of their salaries, not just low-wage workers.
According to a recent Bank of America Institute analysis, more Americans with annual incomes over $250,000 than those with annual incomes under $100,000 spend their entire income.
Undoubtedly, those who are actually “living paycheck to paycheck” tend to be those who are lower on the wage scale, according to the company.
However, the research also reveals that a sizeable portion of workers across all income levels routinely spend all or even more of their earnings.
According to David Tinsley, senior economist with the Bank of America Institute, “in any given income level there is a chunk of people that look like they’re financially quite stretched in terms of their outgoings relative to their incomings.”
What “paycheck-to-paycheck” means
In the first quarter of 2022, Bank of America economists examined customer bank accounts using anonymised client data, focusing on cash inflows such as income and other deposits as well as cash outflows such as credit card purchases.
The Institute discovered that as people’s income increases, their spending frequently outpaces their income and other deposits.
According to the survey, about 20% of BofA customers with annual salaries of above $250,000 spent 15% more than they deposited into their accounts.
Comparatively, 17 percent of clients who make between $50,000 and $100,000 each year have a tendency to spend more than they make.
According to the research, “those on lower salaries are expected to be most challenged by rising prices and economic instability.”
However, as we go deeper into the statistics, we discover that there are tiny but significant populations that do actually live “paycheck to paycheck,” even in higher income levels and across the age spectrum.
The bank points out that having a tight budget does not necessarily mean that one cannot afford basic expenses like food and gas.
More specifically, it might also signify that a person is merely devoting the majority of their money to necessary expenditures.
The analysis, however, only considers account activity over a single quarter and ignores employees who anticipate receiving significant bonuses at the end of the year.
According to Tinsley, high-income consumers might also be financing a home or contributing a portion of their earnings to brokerage or investment accounts.
“You have people paying their mortgages or sending money to brokerage accounts, so you may be on a salary of $250,000 and have borrowed a lot of money to finance property, and that would absolutely put your outgoings very close to your incomings,” Tinsley said.