78 Percent of US Workers Living Paycheck-to-Paycheck

Inside Subprime: Feb 14, 2019

By Lindsay Frankel

Unemployment rates and poverty rates are dropping, yet 78 percent of U.S. workers are living paycheck-to-paycheck. But while most of us are insecure financially, the February PYMNTS.com Financial Invisibles Report states that “For three consecutive quarters, consumers have been optimistic about their financial futures even while slipping further into debt.”

Findings from a corresponding 2018 survey indicate that Americans could be over-relying on credit for financial security, freeing up more spending money that makes them feel like they’re on top of their finances even as debt accumulates. There was a significant increase in consumers using credit to pay their bills, from 44.6 percent to 61.8 percent in the third quarter of 2018. But while using credit cards may free up income to cover basic expenses in the short term, interest piles on, creating future debt that can be difficult to manage.

The survey revealed that about 81 percent of consumers believe they have improved or maintained their financial situation since a year ago. Yet there was an increase in delinquencies from the previous quarter, and about 36 percent of respondents were so behind on payments that they’d received calls from debt collectors.

And, more Americans, even those with high incomes, are using alternative financial products like pawn shop loans and payday loans. Surprisingly, the average annual income for respondents using payday loans was $80,500. Overspending was a problem for people in high income brackets as well.

Over half of survey respondents who were living paycheck to paycheck believed they weren’t spending unnecessarily, but instead using their income to cover basic expenses. And the same excuse was used by 40 percent of respondents earning more than $150,000 annually. Those earning a high income were also getting denied for credit cards, mortgages, and auto loans at higher rates than lower-income individuals. Surprisingly, higher-earning respondents even experienced higher payday loan denial rates.

Are Americans likely to recognize problems with their spending habits if they continue to use credit as a crutch? About 28 percent of consumers reported being “very interested” or “extremely interested” in receiving financial literacy education, and the percentage was much higher (over 75 percent) among those who had lived paycheck to paycheck in the past. So although Americans may be overconfident about their future financial security, most who have struggled in the past are determined to learn better ways to manage their budget.

It’s clear that Americans have an overspending problem that spans income levels. But as The Guardian reports, low-paying jobs, part-time employment, and lack of benefits are often to blame for strained finances. There isn’t an all-encompassing solution for U.S. workers who are barely making ends meet, but experts agree that budgeting and setting aside money for savings are instrumental in creating healthier financial futures for consumers.

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