Economic Struggles for American Households
The discussion panel on The Big Money Show reacted to Brian Moynihan’s assertion that spending among Americans persists, even amid a growing sense of economic pessimism.
According to a recent report, nearly a quarter of U.S. households live paycheck to paycheck. It’s an increase from the previous year, though the rate of change appears to be slowing. Specifically, the Bank of America Institute estimates that by 2025, about 24% of households will be living under what is considered a “living wage,” which reflects a marginal increase from 2024. Interestingly, the rate at which this number has grown is significantly lower than it was the year prior.
So, what does living wage mean in this context? It’s defined as a household spending more than 95% of its income on essentials like rent, food, utilities, internet, transport, and childcare. This doesn’t leave much, if anything at all, for savings or other discretionary spending.
“While we’ve seen more households in this situation this year, the growth rate has really slowed down,” noted Joe Wadford, an economist at the Bank of America Research Institute, in a talk with FOX Business. “The financial stress seems to be mostly hitting lower-income households as they deal with rising costs.”
New Car Prices Reach Record Highs
Inflation, which has surged, is contributing to this economic strain. Starting in January 2025, it’s anticipated that after-tax wages for lower and middle-income families will lag behind inflation. As a result, the ratio of those living paycheck to paycheck among low-income households has climbed to 29% this year—up from 28.6% last year. On the flip side, middle- and high-income families have seen negligible increases in this ratio.
“Inflation is definitely a significant factor for middle and low-income households. This year has highlighted the widening gap between their wages and living expenses,” Wadford pointed out. “For example, if living costs spike by $300, but your pay rises by only $100, that creates a real dilemma. Some families simply can’t manage,” he added.
Pessimism About Financial Futures
Currently, it’s estimated that about 19% of high-income households are also living paycheck to paycheck, which might come as a surprise. The lifestyle changes often associated with higher income—like buying houses, cars, and other expenses—can quickly drain financial resources, Wadford mentioned.
Moreover, inflation continues to press on household budgets across the board. Although wages initially grew rapidly during 2021-2022, they have since started to plateau, particularly for lower-income groups. It appears this divergence in wage growth is a long-standing trend.
“We seem to be in a K-shaped economic situation,” Wadford explained, noting that the difference in wage growth between high and low earners is currently the widest it’s been since 2016. If this trend continues, it could set the tone for the near future, especially if the job market behaves differently for various income brackets.
