When the financial services industry speaks on the year-in, year-out tragedy that is living paycheck-to-paycheck, our minds naturally gravitate to the lower-income individuals in the United States, typically those earning $50,000 or less.
And it’s true: according to LendingClub’s recent report, roughly three-quarters of consumers earning less than $50,000 or less were living paycheck-to-paycheck in June 2023, while 65 percent of those earning $50,000–$100,000 were doing the same.
But it’s not only lower-income Americans who are getting buried under interest rate hikes and inflationary pressures. Data from personal finance company Quicken and reported by Yahoo! Finance discovered that 32 percent of Americans earning $150,000 or more are currently living paycheck-to-paycheck.
“Our research shows an economic divide that is widening among Americans – there is a large group of hardworking people who are still struggling financially,” said Quicken’s CEO Eric Dunn in a press release. “I’m troubled by the compounding problems facing this group – many of them are living paycheck-to-paycheck and relying on credit cards they may not be able to afford.”
Paycheck-to-paycheck culture hitting the wealthy, too
Life can get complicated, even for the quote-unquote “rich” or “wealthy” in American society. The American Dream does indeed come with its share of potholes and missteps, and Marguerita Cheng, certified financial planner and CEO for Blue Ocean Global Wealth, has certainly had her share of stories attesting to that fact.
Reported by The Guardian this month, a Washington, D.C.-area client of Marguerita’s generates $450,000 to $600,000 per year yet lives paycheck-to-paycheck. To most of us, none of that makes sense. Close to or exceeding half-a-million dollars is a lot. But we’re looking in from the outside, aren’t we? The fact is the individual is responsible for over $8,000 a month to his ex-wife while both of his children are attending four years of private school at the lovely price of $150,000.
“He basically uses his bonus to cover the private high school tuition,” Cheng clarified. “I understand this is an extraordinary situation. I’ll share a saying that my dad taught me: ‘Money may not buy happiness, but it can buy peace.’ In this situation, sometimes you have to do what you have to do to keep an ex-spouse happy.”
Marguerite Cheng’s client is not being singled out. Scores of Americans in today’s economy fight hand-to-mouth on six-figure paychecks, which most of us would say register in the “well-off” income bracket. Unfortunately for many younger consumers in the U.S. right now, alimony is not an excuse they can use to explain their lack of financial health and stability.
Living paycheck-to-paycheck is a particular issue among Millennials aged 18-35. Another finding from the LendingTree report discovered that 44 percent of that age group earning between $100,000 to $149,000 are living paycheck-to-paycheck. The challenge, claim financial advisors (and which you can probably tell already), is that such Millennials simply aren’t accustomed to earning this kind of big money so early in their careers and find themselves giving in to the temptation to live up to a perceived or given lifestyle; “keeping up with the Joneses,” if you will.
For many others, it may just be the added costs of their growing daily expenses, or the items they’ve conditioned themselves to call “necessities.” As is so common today, it’s those daily expenses, those necessities (that aren’t, really), that begin to add up. And what is their first thought to tackle the problem?
“I’ll just put it on the credit card.”
Excessive credit card use increasing among higher-earning consumers
The hard truth is this: credit card usage topped $1 trillion in the second quarter of 2023.
That’s trillion . . . with a T.
So it makes complete sense that high-income consumers waiting tooth-and-nail for their next paycheck to finance everyday expenditures, they trick themselves into believing credit cards are the last, best hope for buying the lifestyle they want. Unfortunately, reality comes back to bite, with a heavy cost.
The Quicken survey found that 46 percent of higher-income groups are currently more dependent on their credit cards than they’ve ever been. That compares to just 40 percent of middle-income earners and 39 percent of lower-income individuals. In addition, about a third of consumers earning $150,000 per year admitted they won’t be able to pay off their cards by the end of the year.
Those consumers unable to pay off their monthly credit card bill consistently and on time put themselves at moderate to severe risk of accumulating a significant amount of interest that only becomes tougher and tougher to pay off over time. Not only that, but they’re also destroying their credit score, by which lenders and companies search for when your member applies for various products like, say, small-dollar loans.
How to tackle high-income earners’ debt
Lower-income or higher-income, the rules are the same. If a member is finding it difficult to get their credit card debt under control, give these three actions consideration, with help from Experian:
- Credit counseling
The credit union movement prides itself on certified credit counselors who can work with them to create a financial plan to better manage their credit card debt. In fact, feel free to communicate to your community the fact that the Federal Trade Commission itself specifically singles out credit unions as among the best, most reputable organizations from which to receive credit counseling services.
- Debt management plan
A “DMP” is solely focused on abolishing your member’s debt. To that end, the member deposits the agreed-upon monthly amount with a credit counselor who will ensure the money to pay their debt down, according to the payment schedule the counselor works out with the member and the given creditor. While the creditor may agree to lower the interest rate or outright waive specific fees, they don’t have to.
- Debt consolidation
If your high-income earner is dealing with a lot of high-interest debt, a common situation being multiple credit card balances, debt consolidation loans represent a financially healthy payment option for reducing the amount they pay every month. By paying just one bill at their local credit union rather than multiple credit card bills, the member can shorten the monthly total they pay and even pay it down faster.
Financial well-being isn’t just a far-off goal of the financially-underserved. As you read above, combined with multifaceted economic factors that are changing by the month, the wealthier, too, are experiencing shortages in financial literacy and education that is readily available at their local credit union.
Let’s continue to spread the word to lower-, middle-, and higher-income earners alike that the credit union movement is here for them!