According to new research from LendingClub, approximately 61 percent of Americans are living paycheck-to-paycheck, 2 percent more than a year ago.
The study found that low-wage earners are most likely to live paycheck-to-paycheck, with almost 8 out of 10 respondents earning less than $50,000 a year saying they would be unable to cover their bills if they suddenly lost their income.
Among high-income Americans, the situation is not as dire, but still serious. Four in 10 high-income respondents, that is, those earning more than $100,000 a year, said they were in the same position.
While historic levels of inflation are having an impact on consumers’ pocketbooks, the research revealed that nonessential spending was the top reason why respondents live paycheck-to-paycheck.
“A staggering 16 million U.S. consumers — slightly over 10% of the paycheck-to-paycheck U.S. population — claim that nonessential spending is the primary reason they are trapped in the paycheck-to-paycheck cycle,” the research found.
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Approximately 21 percent of paycheck-to-paycheck consumers cite nonessential spending as one reason for living pay-check-to-paycheck, and around six percent of the U.S. adult population can be considered “discretional” paycheck-to-paycheck consumers.
High levels of nonessential spending was found throughout the American population, with 74 percent of respondents admitting to including “nice-to-have” items in their grocery carts, and 70 percent saying the same for their retail purchases.
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Gen Z Most Impacted
The study found that for young consumers’ nonessential spending was a “prominent issue … particularly among members of Gen Z.”
Approximately 29 percent of American Gen Z consumers live paycheck-to-paycheck and cite nonessential spending as being a contributing factor to their financial distress.
Fifteen percent cited nonessential spending as the top factor, “marking them as the most affected demographic.”
Alia Dudum, LendingClub’s Money Expert said, “With ongoing inflation requiring consumers to tighten their belts, nonessential spending can mean the difference between living paycheck to paycheck or not,” adding that, “It’s prudent for all consumers — especially those in younger generations who are more apt to indulge in nonessential spending — to regularly assess their spending habits and remain mindful of the compounding effect nonessential spending can have on their overall financial stability. If not careful, this type of frequent spending behavior can quickly snowball into bigger and lasting debts.”
Another study, published in April, 2023 by the LendingClub, revealed that 73 percent of millennials lived paycheck-to-paycheck.
“Millennials are the generation most likely to live paycheck to paycheck, with 73% doing so this year and last, but a growing share of Generation Z are struggling financially,” the study found.
The most prevalent reason for financial distress for millennials are expenses related to “dependent family members and debt.”
Anuj Nayar, Financial Health Officer at LendingClub said, “The oldest millennials are in their forties now and often managing expenses for not just their kids but also aging parents. It’s no wonder that almost three quarters of them are living paycheck to paycheck,” adding that, “Generation Z are more apt to face financially life-altering events such as job loss, making them more financially vulnerable than any other generation. That said, with over half living with their parents or siblings, they can hopefully better absorb shocks to any temporary disruption in income. The data also indicate that Gen Z are often not saddled with the financial obligations of older generations, and it shows in the way they manage their money to clearly prioritize living in the moment.”