Have you ever wondered what percent of Americans live paycheck-to-paycheck?
The answer to that question can be found buried within the most recent “Financial Capability in the United States” report, produced by the FINRA Investor Education Foundation (as a side note, if you like personal finance and cultural data, the report is a great read).
In a nationwide online study of 25,000 American adults,
“Just over two-fifths of respondents (41%) report spending less than their income, 36% spend about equal to their income, and 19% spend more than their income.”
In other words, 55% of Americans are living paycheck-to-paycheck (and these are the folks who have online access, which one would assume are better off than those who don’t). Actually, that’s inaccurate. 36% are living paycheck-to-paycheck, 19% are actually worse off than that – accruing debt.
That means that about 6-in-10 people you pass walking down the street (as they enter clothing stores and bars) are saving absolutely nothing or worse.
And only 35% are “certain they could come up with the full $2,000” if an unexpected need for $2,000 came up within the next month (similarly, 40% claimed to have set aside 3 months or more in an emergency savings fund).
At the same time (ironically),
- 73% of Americans have positive perceptions of their own financial knowledge and math skills.
- Only 31% are “not satisfied with their personal financial condition.”
In other words, despite spending everything, most think they are financial gurus! “Everything is fine. Nothing to see here…”
Is this pathological denial or ignorance?
People (of the United States) – I want to be clear about something here: spending everything you earn (and then some) is NOT GOOD.
Sadly, it’s one of the pre-dominant financial memes out there because “spend less than you earn” is often taken as “spend almost everything you earn”. It’s easy to prescribe, easy to follow, and universally understood.
It’s also a recipe for disaster.
What happens when you consistently live paycheck-to-paycheck?
- You go into serious debt if income stops coming in, and then you pay high interest on that debt
- You are always stressed out about financial risk and hardship
- You aren’t able to build sufficient emergency savings
- You will never save anything for retirement and will be working until death
- You will never achieve financial independence
- You will not be able to save up for an occasional vacation, home improvement, education, etc.
- You really can’t work towards ANY future goals that are reliant on saved assets
It doesn’t have to be this way.
Granted, those in the very lowest income brackets are not going to be able to save much, if anything (no matter what McDonald’s PR firm tries to sell us).
But the median US household income is $51,324. Outside of West and East coast metros, anything nearing this level of income should be adequate enough to provide a level of savings for most individuals and small families.
Everything is not OK. Stop the madness!