Living Paycheck to Paycheck: It?s Not Just for the Poor

March 22, 2014
Washington Post Wonkblog 
Although the term "living paycheck to paycheck" often is used to describe low-income households, a new paper suggests that many wealthy U.S. households are in the same circumstances. "The Wealthy Hand-to-Mouth," written by economists at Princeton and New York University, finds that about a third of American households, or 38 million, live from one paycheck to the next. These families hold little to no liquid wealth in the form of cash, savings, or checking accounts. Two-thirds of these households, however, may lack liquid wealth but have an average $50,000 in illiquid assets. This money is tied up in houses, cars, or retirement accounts and cannot be accessed easily in hard times.

The wealthy hand-to-mouth tend to be older and more educated, with significantly higher incomes than the poor who live paycheck to paycheck. While lower-income consumers tend to live hand-to-mouth for long periods of time, this status is more fleeting for their wealthier counterparts and lasts only 2.5 years on average.

Economic stimulus programs usually target the poor, but wealthier hand-to-mouth households that face similar monthly spending also may respond positively to economic stimulus. The authors conclude that, "in order to maximize the aggregate consumption response to fiscal stimulus payments, the payments should feature more moderate phasing out with household income."

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