Living paycheck to paycheck isn’t just a problem for low-income households anymore.

A notable increase in middle- and higher-income families are spending nearly all their earnings on essential expenses, leaving little to no room for savings or discretionary spending, as reported by the Bank of America Institute, which uses data from the bank to track economic trends.

Experts attribute this to the unprecedented inflation that arose during the pandemic, particularly the rise in housing costs that consume the earnings of many Americans, including those in higher income brackets.

“Wealthier individuals often have larger homes,” explained David Tinsley, a senior economist at the Bank of America Institute, “which means their mortgage and related costs take a significant slice of their larger paychecks.”

This trend may lead to reduced consumer spending, which constitutes 70% of economic activity and has been fueled recently by affluent Americans. It also presents complicated public policy issues, such as whether state or local governments should provide financial assistance to help middle-income renters with their housing costs.

How many people are living paycheck to paycheck?

As of this year, 24% of middle-income households earning between $51,000 and $75,000 annually live paycheck to paycheck, which is an increase from 23% last year and 20% in 2019, before the pandemic hit, according to the Bank of America Institute. Among those earning between $75,000 and $100,000, 23% are also struggling to make ends meet, up from 19% in 2019. For individuals in the $101,000 to $150,000 range, 22% are utilizing most of their earnings just for necessities, compared to 18% previously.

Surprisingly, even 20% of households earning above $150,000 report having little left after covering basic expenses.

In contrast, the challenges faced by lower-income families, those earning under $50,000, are significantly worse, with 36% living paycheck to paycheck—up from 32% in 2019, according to the data from Bank of America. Households making less than $30,000 often find themselves with just a few hundred dollars remaining after paying for rent and utilities, whereas their middle-income counterparts might have a few thousand left, as noted by the Joint Center for Housing Studies at Harvard University.

The Bank of America Institute has examined the inflow and outflow of cash from a large sample of consumer checking and savings accounts to determine that over 95% of household income is spent on essential expenses like food, gasoline, utilities, internet, and child care.

Surveys show that nearly half of Americans feel they’re living paycheck to paycheck, but many of them might mistakenly include non-essential expenses like dining out as necessary, Tinsley explained. The cash flow analysis offers a clearer understanding by emphasizing essential spending.

What has caused the increase in living costs?

Inflation has led to rising costs impacting everyone, regardless of their income level over the past few years. Since early 2021, overall consumer prices have risen nearly 20%, and grocery prices have increased by 21%, according to the consumer price index. Housing costs have risen even more substantially and now represent a significant portion of households’ budgets.

Rent prices have surged 23% during the same period, as reported by the CPI. Additionally, the average cost of single-family homes has skyrocketed by 38%, according to the S&P Case Shiller National Home Price Index. Other related expenses have also climbed, with homeowners’ insurance seeing an average increase of 65% from pre-pandemic levels and property taxes going up 25%, as per Oxford Economics.

Larger homes purchased by wealthier households come with higher costs for insurance, taxes, and utilities, stated Tinsley.

What is driving up housing costs in the US?

During the early phase of the COVID-19 pandemic, many people moved from crowded cities to larger, more expensive homes in suburban areas, causing both home and rental prices to escalate. Concurrently, there was insufficient new construction of houses or apartments to alleviate the rising costs, according to Alexander Hermann, a senior research associate at Harvard’s Joint Center for Housing Studies.

According to the center, in 2022, 40.7% of middle-income renters making between $45,000 and $74,999 were categorized as “cost burdened,” meaning they spent over 30% of their income on rent and utilities, compared to just 35.3% in 2019. Additionally, 27% of homeowners also faced similar burdens, redirecting over 30% of their income towards mortgages, taxes, and insurance, an increase from 26% previously.

Financial strain in 2022 also affected 16.3% of households earning between $75,000 and $99,999 and 10.2% of those earning $100,000 to $124,999, both higher than the figures for 2019.

Households under financial strain often have to sacrifice other essentials such as food, healthcare, or educational supplies, explained Hermann.

Are wages keeping up with inflation?

Many individuals have been able to keep up with rising costs thanks to strong wage growth driven by pandemic-era labor shortages, which has provided most workers with greater purchasing power compared to before the health crisis.

However, Tinsley pointed out that this hasn’t been true for everyone, particularly for some well-paid workers.

In the fields of technology and finance, many workers have faced significant layoffs as a result of increasing interest rates over the past couple of years.

‘I made it another two weeks’

Elizabeth Rudd, living in Anaheim, California, has received minor pay raises while working in accounting for a furniture company. However, since the passing of her husband due to COVID-19 in 2021, she has depended entirely on her $70,000 salary to support herself and her adult son. Additionally, the fees for their homeowners association have surged by 60% in the last three years, rising from $275 to $438.

At 62, Rudd has made several lifestyle adjustments, including cutting out dining out, cancelling vacations, reducing her cable package to just 20 channels, and opting for a cheaper cellphone plan. She repurposes chicken strip dinners into multiple meals, and unfortunately, she has no savings for unforeseen events. Despite these cutbacks, each paycheck brings anxiety as she wonders how she will manage in the upcoming weeks.

“I take a breath when I receive the next paycheck,” she said. “Whew… I’ve made it another two weeks… This isn’t the situation I anticipated at my age.”

In recent years, local and state governments have initiated more subsidized rental housing programs aimed at assisting middle-income families, according to Hermann. However, some critics express concern that this could divert funds away from lower-income individuals who are in greater need.

“These programs should work hand in hand with initiatives for low-income families, not replace them,” he said.