It’s no surprise to hear someone in the U.S. say they’re living paycheck to paycheck. More than half of Americans do, by some measures. It’s a little more surprising to hear someone who earns well into six figures say they’re living paycheck to paycheck—but get used to hearing that, too. The question is this: What does it mean when people with $250,000 or more in annual income say they’re living paycheck to paycheck? And how is a definition of living paycheck to paycheck, where the term is being applied to these high earners, affecting our economic discourse and tax policy?
According to a PYMNTS/Lending Club report, 36% of people earning $250,000 or more are now living paycheck to paycheck, though just 10-12% said they had trouble paying their bills, while the remainder said they were living paycheck to paycheck but were comfortable. One such person recently turned to MarketWatch for help with their extremely first-world financial issues.
The writer’s question was about consolidating debt through a home equity line of credit (HELOC) and investing in rental properties, starting from this financial scenario:
By the end of 2022, I will have made $350,000 before taxes as the sole breadwinner and head of household. This is a great starting point and I’m very aware how blessed we are to be in this position, but I’m always looking ahead on how to improve. I currently have $88K left in student loans (originally close to $150K) and very little credit card debt (less than $2K with more than $25K available). I have two auto loans totaling $170K for two electric vehicles at 5% interest.
As a result, “after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper, I’m paycheck to paycheck.”
This writer isn’t being overtly a jerk about this—there isn’t the “oh, poor me” sense that often comes through when high-income people talk to reporters about their budgets. But it’s profoundly messed up that “paycheck to paycheck,” a term originally used to describe people struggling to pay their essential monthly bills and vulnerable to relatively small economic emergencies, has expanded to the point where this person would ever think to describe themself that way. If your monthly line items include savings and a 401(k) contribution, you’re not living paycheck to paycheck—you’re literally saving for the future.
If one of your major debts is the $170,000 loan on your “two electric vehicles” (c’mon, just say Tesla), that’s an extremely strong statement that you’ve chosen to live paycheck to paycheck, by the expanded definition that’s apparently taking over the world of personal finance reporting. If the investments you’re considering are rental properties, you’re getting ready to enrich yourself at the expense of renters who are actually living paycheck to paycheck.
Paycheck to paycheck implies precarity, yet now, more than 20% of people earning over $250,000 say they’re living paycheck to paycheck but are comfortable. Other assessments of who is living paycheck to paycheck have found different, and often smaller, shares of the population and, in particular, the high-income population living that way, New York Times columnist Peter Coy wrote last summer. He cites a Bank of America Institute report arguing that high discretionary spending across incomes “tends to imply that while some people may be living paycheck to paycheck, they may still have scope to reduce their discretionary spending if they need to.”
No kidding. Yet the definition of paycheck to paycheck that encompasses people raking in hundreds of thousands of dollars a year and spending it on Teslas and investments is clearly taking over in the personal finance press. In other words, the term has been redefined into uselessness—and that’s dangerous. Writing up the trials and travails of high-income people struggling to pay a big mortgage and private school tuition is a common way to argue against tax increases on the highest-earning 3% of households. Similarly, the claim that a significant percentage of high-earners are living paycheck to paycheck was used to propel the idea that inflation was so serious that even people making hundreds of thousands of dollars were feeling the sting.
When affluent people are defined as struggling financially, it’s usually bad news for people who are actually struggling financially. Because somehow the answer is never that our government and society should invest in things that would help middle- and working-class families. It’s always something along the lines of depriving government of money to invest in education because paying higher taxes would be too much for people who are already paying private school tuition. And focusing on the alleged financial struggles of the affluent is yet another way the media disappears the very large majority of people with much lower incomes and much larger challenges.
Powered by WPeMatico