Why Americans Earn Six Figures Live Paycheck
Why are the highest paid in the country still spending their salary before they can cash in on the next one? Credit use, increased household spending and student debt can play a role in their financial habits.
PYMNTS.com and LendingClub Corp. conducted the survey of 4,048 US consumers from April 6 through April 13. Overall, 61% of consumers in all income brackets reported living paycheck to paycheck, making it the most common financial style in the United States. survey conducted last April, only 52% of people said they live from paycheck to paycheck.
“This increase means that about three in five people in the United States
consumers spend almost all of their wages on expenses with little or nothing at the end of the month,” PYMNTS said.
In addition to the 36% of top earners who live paycheck to paycheck, the survey found that 26% of those earning between $200,000 and $250,000 live paycheck to paycheck. the other, along with 31% of people earning $150,000 to $200,000 and 36% of people earning $100,000. at $150,000. Even so, only 10-12% of people in these high income brackets reported having trouble paying their bills.
According to the Education Data Initiative research organization, people in these income brackets fall into the category of Americans earning more than $74,000 a year and holding 60% of total student government debt. Those earning between $106,827 and $373,894 owe an average of $45,965
Monthly payments for those with 45,000 student loans range from $477 to $4,040, depending on APR and loan term, says WalletHub. Typically, loans last 10 years and have an APR of between 5% and 14%. For someone with a 10-year loan at 5%, the monthly payment would be $477.
In February, the average monthly spending by US households was $5,111, according to a US Consumer Expenditure Survey.
Bureau of Labor Statistics quoted by the Motley Fool.
While more than a third of PYMNTS survey respondents who earn $250,000 are in the paycheck-to-paycheck group, PYMNTS explained that they “manage their financial lifestyle in interesting ways” and are associated with increased use of credit cards.
Along with more intense use of credit and financial products, high earners also tend to have higher credit scores – financial risk calculations. According to the US governmentcredit scores can be calculated based on payment history, outstanding balances, length of credit history, new credit account applications, and credit account types.
In addition to helping consumers get loans, good credit scores can make it easier to rent an apartment, lower your insurance rate, impress employers, get a cell phone with no deposit, and get utilities, according to the Capital One credit card company.
Those earning more than $250,000 are “40% more likely to use financial products than lower-tier consumers, and up to 63% of them have above-average credit scores above 750 points said PYMNETS.
Additionally, 22% of people in this bracket have three or more credit cards.
“Credit products are a cash flow management tool for paycheck-to-paycheck consumers, especially those with higher incomes,” PYMNETS explained. Other financial products used by high-income consumers are personal loans, and many have recently made payments at an above-average rate of 14%.
According to the Federal Reserve Bank of New York, there was a “solid increase” in household debt in the first quarter of this year of $266 billion to a total of $15.84 trillion. Credit card balances were $71 billion higher than in the first quarter of last year.
Bloomberg reported this week that housing expenses, which absorb a considerable amount of income for most Americans, have “skyrocketed” since the start of the COVID-19 pandemic in March 2020. From April last year to April, inflation caused the consumer price index jumped 8.3% before seasonal adjustment.
“To fund their lifestyles, higher-income households are more likely to put spending on credit cards — but also more likely to be able to pay off their balances in full,” Bloomberg said, and borrowing from US consumers “soared” in March.
However, in order to fight inflation, the Federal Reserve Bank should raise interest rates. This could make credit card payments higher.
“Since most credit cards have a variable rate, there is a direct link to the Fed’s benchmark,” said CNBC last month. “As the federal funds rate goes up, so does the prime rate, and credit card rates follow. Cardholders see the impact within a billing cycle or two.
As high- and low-income earners live paycheck to paycheck in the United States, a Federal Reserve Bank study published this month found that 78% of adults nationwide said they were doing well or living comfortably financially last year, a record since 2013. This could be attributed to government support offered during the pandemic, such as child tax credits .