Living paycheck to paycheck in the US: Problems & Solutions 2023

Living paycheck to paycheck is a term used to describe a financial situation where a person’s expenses are equal to or greater than their income, leaving them with little or no savings. In the United States, this is a common experience for many people, particularly those who are low-income or working-class.

The cost of living in the US has risen significantly in recent years, while wages have remained relatively stagnant. As a result, many Americans struggle to make ends meet, with little or no financial cushion to fall back on in an emergency.

Living paycheck to paycheck can be stressful and financially precarious, as unexpected expenses or a loss of income can quickly lead to financial hardship. It can also make it challenging to plan for the future, such as saving for retirement or investing in education or a home.

According to a survey conducted by CareerBuilder in 2019, 78% of American workers live paycheck to paycheck.
A study by Bankrate in 2020 found that 35% of Americans have no emergency savings, and only 23% have enough to cover six months of expenses.
The Federal Reserve’s 2020 Survey of Household Economics and Decisionmaking (SHED) found that 37% of adults in the US could not cover a $400 unexpected expense without borrowing or selling something.
A National Bureau of Economic Research report found that the number of Americans living paycheck to paycheck increased from 28% in 1995 to 40% in 2017.
A 2021 report by the Pew Charitable Trusts found that 52% of US households experienced a loss of income or increased expenses due to the COVID-19 pandemic, and 32% had difficulty paying their bills.
A survey by the American Psychological Association found that financial worries are a leading cause of stress for Americans, with 72% of adults reporting feeling stressed about money.
The Economic Policy Institute reports that the median household income in the US in 2019 was $68,703, but adjusted for inflation, it has only increased by 0.6% since 2000.
A National Low Income Housing Coalition report found that a full-time worker earning the federal minimum wage of $7.25 per hour would need to work 97 hours per week to afford a two-bedroom rental home at fair market rent in most areas of the US.
A Center for Responsible Lending study found that payday loans, often used by people living paycheck to paycheck, have an average annual percentage rate (APR) of 391%.
A report by the Urban Institute found that 25% of Americans have medical debt, and 47% of those with medical debt have defaulted or struggled to pay other bills.

These statistics demonstrate the significant financial challenges many Americans face, particularly those with lower incomes or living areas with a high cost of living. They also highlight the need for policies and programs that support excellent financial stability and security for all Americans.

Why Paycheck to Paycheck Living Increasing in the US?

The increase in the number of Americans living paycheck to paycheck can be attributed to several factors, including:

Stagnant wages: Wage growth has not kept up with the rising cost of living, leaving many workers struggling to make ends meet. According to the Economic Policy Institute, the median hourly wage for workers in the US in 2020 was $21.69, which is only 7.4% higher than in 1979 after adjusting for inflation. Meanwhile, the cost of living, including housing, healthcare, and education, has increased much more rapidly. For example, the average cost of college tuition has more than doubled since the 1980s, while healthcare has risen faster than inflation for decades.
Rising costs of living: The cost of living in the US has significantly increased in recent years, with housing, healthcare, and education among the most significant expenses. According to the Bureau of Labor Statistics, housing expenses, including rent or mortgage payments, utilities, and other related costs, make up the largest share of consumer spending, accounting for 33% of total expenditure in 2020. Healthcare expenses account for 8% of total spending, and education expenses account for 2%. These expenses have increased faster than inflation, making it difficult for many Americans to make ends meet.
Economic inequality: Income and wealth inequality in the US have grown significantly over the past few decades, with the wealthiest Americans seeing their income and wealth grow while many others experience stagnant or declining revenues. According to the Institute for Policy Studies, the top 1% of households in the US held 15 times more wealth than the bottom 50% in 2020. This concentration of wealth has made it more difficult for many Americans to build financial stability and accumulate savings.
Lack of affordable healthcare: High healthcare costs can lead to medical debt and financial instability, particularly for those without adequate insurance. According to a report by the Kaiser Family Foundation, the average annual premium for employer-sponsored health insurance in 2020 was $7,470 for single coverage and $21,342 for family coverage. Additionally, many Americans face high deductibles and copays, which can lead to significant out-of-pocket expenses.
Student debt: The rising cost of a college education has led to a surge in student debt, with many recent graduates struggling to repay their loans while covering basic living expenses. According to the Federal Reserve, outstanding student loan debt in the US reached $1.7 trillion in 2021, and the average student loan borrower owes $32,731. This debt can make it difficult for young people to save for the future and can delay important life milestones, such as buying a home or starting a family.
Emergencies and unexpected expenses: A single unexpected expense, such as a medical bill or car repair, can quickly disrupt a household budget and lead to financial hardship. According to the Federal Reserve’s SHED survey, 37% of adults in the US could not cover a $400 unexpected expense without borrowing or selling something. Additionally, many Americans lack access to emergency savings, with a survey by Bankrate finding that 35% of Americans have no emergency savings.
Gig economy and precarious work: The rise of the gig economy and precarious work arrangements have made it more difficult for many Americans to earn a stable income. According to the Bureau of Labor Statistics, the number of workers in alternative work arrangements, including gig work and contract work, increased from 10.1% in 2005 to 15.8% in 2015. These workers often lack benefits such as health insurance, paid time off, and retirement savings, which can make it more difficult to build financial stability.
Racial and gender disparities: There are significant racial and gender disparities in income and wealth in the US, which can exacerbate the financial challenges faced by many Americans. For example, according to the Institute for Women’s Policy Research, women in the US earn only 82 cents for every dollar earned by men and women of colour face even more significant pay disparities. Similarly, Black and Latino households have significantly lower levels of wealth than white households, making it more challenging to build financial stability and weather unexpected expenses.
Limited access to credit: Many Americans living paycheck to paycheck have limited access to credit, which can make it difficult to cover unexpected expenses or make ends meet during times of financial hardship. According to a Consumer Financial Protection Bureau report, approximately 45 million Americans have little or no credit history, making it difficult to qualify for loans or credit cards. Additionally, many Americans have poor credit scores due to past financial challenges, which can lead to higher interest rates and fees.
Insufficient government assistance: Government assistance programs, such as food stamps and rental services, can provide critical support for low-income families. However, these programs are often insufficient to meet the needs of many Americans living paycheck to paycheck. For example, the average monthly benefit for a family of four receiving food stamps in 2021 was $642, which is often not enough to cover the cost of food for an entire month.
High housing costs: One significant expense that many Americans struggle with is housing. According to a report by the National Low Income Housing Coalition, a full-time minimum wage worker cannot afford a two-bedroom rental home in any state in the US without spending more than 30% of their income on housing. This can make it difficult for many Americans to save money or build financial stability, especially if they are also dealing with other expenses like student loans or medical bills.
Medical debt: Medical debt is a significant contributor to financial insecurity for many Americans. According to a study by the Kaiser Family Foundation, 26% of adults in the US report having trouble paying medical bills, and medical debt is a leading cause of bankruptcy. Even for those with health insurance, high deductibles and copays can make medical care unaffordable, particularly for low-income individuals and families.
Lack of financial literacy: Many Americans living paycheck to paycheck may lack the financial knowledge and skills to effectively manage their money and plan for the future. According to a National Financial Educators Council survey, only 24% of millennials demonstrate basic financial literacy skills, and many Americans struggle with debt, savings, and retirement planning. Improving financial literacy and education could help more Americans build financial stability and reduce their reliance on paycheck-to-paycheck living.
Lack of affordable childcare: The cost of childcare can be a significant expense for many families, and lack of access to affordable childcare can make it difficult for parents to work or pursue education or training opportunities. According to a report by the Economic Policy Institute, the cost of infant care in a childcare centre is higher than the average cost of in-state tuition and fees at a four-year public college in 28 states. Addressing the high cost of childcare and expanding access to affordable options could help more families build financial stability and reduce their reliance on paycheck-to-paycheck living.
Decline in union membership: Union membership has declined significantly in the US over the past several decades, contributing to the decrease in wages and benefits for many workers. According to the Economic Policy Institute, the decline in union membership explains approximately one-third of the rise in wage inequality among men and one-fifth among women. Without the bargaining power of unions, many workers are left to negotiate wages and benefits on their own, making it more challenging to earn a living wage and build financial stability.
Cost of transportation: Transportation is another significant expense for many Americans, especially those who live in areas without access to public transportation. According to a report by the Center for Neighborhood Technology, the average American household spends 20% of its income on transportation, and low-income households spend even more. This can make it difficult for many Americans to save money or build financial stability, especially if they are also dealing with other expenses like student loans or medical bills.
Economic insecurity: Finally, economic insecurity and uncertainty can make it more difficult for many Americans to plan for the future and build financial stability. The COVID-19 pandemic, for example, has highlighted the challenges faced by many Americans in the face of unexpected emergencies and disruptions to the economy. In addition, many workers face job insecurity with temporary or part-time work or jobs that may be at risk of automation or outsourcing.

Lack of access to affordable credit: For many Americans living paycheck to paycheck, access to affordable credit can be critical for managing unexpected expenses or emergencies. However, many low-income individuals and families may have limited access to traditional banking services or may be forced to rely on high-interest payday loans or other predatory lending practices. Expanding access to affordable credit, financial counselling, and other resources can help more Americans build financial stability and avoid falling into debt traps.
Income inequality: Finally, income inequality is a significant contributor to financial insecurity for many Americans. According to a report by the Economic Policy Institute, the top 1% of earners in the US took home 15 times more income than the bottom 90% in 2020. This has contributed to a widening wealth gap, with the top 1% controlling more wealth than the bottom 50% of Americans. Addressing income inequality will be essential for reducing the number of Americans living paycheck to paycheck and promoting long-term financial stability for all.

In summary, many complex factors contribute to the increase in Americans living paycheck to paycheck, including racial and gender inequality, the gig economy, lack of access to affordable credit, and income inequality. Addressing these issues will require a multi-faceted approach that includes policy solutions, education and training programs, and support for families facing financial challenges.

How much is Government Responsible for this Situation?

The extent to which the government is responsible for the increase in Americans living paycheck to paycheck is a matter of debate. Some argue that government policies and regulations have contributed to economic insecurity and inequality. In contrast, others argue that government programs and initiatives have helped to alleviate poverty and support low-income families.

There are certainly some ways in which government policies and regulations have contributed to economic insecurity for many Americans. For example, the decline in union membership and the resulting reduction in wages and benefits can be attributed partly to government policies that have weakened labour protections and promoted deregulation. Similarly, the high cost of healthcare and education can be attributed partly to government policies and regulations prioritizing market competition over public investment and support.

On the other hand, many government programs and initiatives are designed to support low-income families and reduce poverty. These include programs like food stamps (SNAP), Medicaid, and the Earned Income Tax Credit (EITC), as well as initiatives like the Affordable Care Act and the expansion of access to affordable housing. These programs have helped millions of Americans meet their basic needs and improve their financial security.

Ultimately, the role of the government in addressing the issue of Americans living paycheck to paycheck will depend on the policies and priorities of elected officials and policymakers. There is no single solution to this complex issue. Addressing the root causes of economic insecurity will require a multi-faceted approach that includes government programs, private sector initiatives, and grassroots activism.

US Government Initiatives to Reduce Paycheck-to-Paycheck Living

Here are some examples of government initiatives that are aimed at preventing Americans from living paycheck to paycheck:

Minimum wage laws: Many states and local governments have implemented minimum wage laws to ensure that workers are paid a fair wage for their labour. The federal minimum wage is $7.25 per hour, but many states have raised their minimum wage above this. For example, in 2022, California’s minimum wage will be $15 per hour for businesses with 26 or more employees and $14 per hour for businesses with 25 or fewer employees.
Earned Income Tax Credit (EITC): The EITC is a federal tax credit that is designed to support low-income workers and families. The credit is based on a worker’s earnings and is refundable, meaning that if the credit exceeds the amount of taxes owed, the worker receives a refund. In 2022, the maximum EITC for a family with three or more children is $6,728.
Affordable housing programs: The federal government and many state and local governments offer affordable housing programs to help low-income families find safe and affordable housing. These programs include public housing, rental assistance programs, and programs that provide financing for the construction of affordable housing. For example, the federal government’s Section 8 Housing Choice Voucher Program provides rental assistance to low-income families, while the Low-Income Housing Tax Credit (LIHTC) program provides tax credits to developers who build affordable housing.
Health care programs: The Affordable Care Act (ACA) expanded access to health insurance for millions of Americans, including those who previously could not afford coverage. The ACA created marketplaces where individuals and families can shop for health insurance, and it also expanded eligibility for Medicaid, the government health insurance program for low-income individuals and families. In addition, many employers offer health insurance benefits to their employees, which can help reduce healthcare costs for workers.
Paid family and medical leave: Several states have implemented paid family and medical leave programs that allow workers to take time off from work to care for themselves or a family member without losing pay. For example, in 2022, California offers up to 8 weeks of paid family leave and up to 6 weeks of paid medical leave
Food assistance programs: The Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, is a federal program that provides assistance to low-income individuals and families to help them purchase food. In 2022, the average monthly SNAP benefit for a household of four is $782.
Child care assistance: The Child Care and Development Fund (CCDF) is a federal program that provides funding to states to subsidize child care for low-income families. The program helps working parents afford child care so that they can continue to work and support their families. In addition, the federal government provides tax credits to help families offset the cost of child care expenses.
Financial education programs: Many states and local governments offer financial education programs to help individuals and families learn how to manage their money and build financial stability. For example, the State of California offers the CalSavers program, which provides a low-cost retirement savings plan for workers who do not have access to a retirement plan through their employer.
Job training and workforce development programs: The federal government and many state and local governments offer job training and workforce development programs to help workers acquire the skills they need to succeed in the modern economy. These programs include vocational training, apprenticeships, and on-the-job training programs. For example, the federal government’s Workforce Innovation and Opportunity Act provides funding for job training and education programs for low-income and underemployed workers.
Financial assistance during emergencies: The federal government and many state and local governments offer financial assistance programs to help individuals and families during emergencies, such as natural disasters or economic downturns. For example, the federal government provided economic stimulus payments to individuals and families during the COVID-19 pandemic to help offset the economic impact of the pandemic.
Student loan debt relief: Student loan debt is a major financial burden for many Americans, and it can make it difficult to build financial stability. The federal government offers several programs to help individuals manage their student loan debt, including income-driven repayment plans, loan forgiveness programs for certain professions, and loan consolidation programs.
Consumer protection laws: The federal government and many state governments have enacted consumer protection laws to prevent predatory lending practices and other financial scams that can trap individuals and families in a cycle of debt. For example, the Consumer Financial Protection Bureau (CFPB) is a federal agency that is responsible for enforcing consumer protection laws and ensuring that consumers have access to fair and transparent financial products and services.
Retirement savings programs: Many Americans are not saving enough for retirement, which can leave them vulnerable to financial insecurity in their later years. To address this issue, the federal government and many state governments offer retirement savings programs, such as 401(k) plans and individual retirement accounts (IRAs). In addition, several states have implemented automatic enrollment programs that require employers to automatically enroll their employees in a retirement savings plan, unless the employee opts out.
Access to credit: Having access to credit is important for many Americans, particularly when unexpected expenses arise. The federal government and many state governments have implemented programs to ensure that individuals and families have access to affordable credit. For example, the federal government’s Small Business Administration (SBA) provides loans to small businesses that may not qualify for traditional bank loans.
Worker protections: The federal government and many state governments have enacted laws to protect workers’ rights and ensure that they are paid fairly for their labor. These laws include minimum wage laws, overtime pay requirements, and anti-discrimination laws. In addition, the federal government and many state governments have implemented safety regulations to protect workers from hazardous working conditions.
Housing assistance: The federal government and many state and local governments offer housing assistance programs to help low-income individuals and families afford safe and stable housing. These programs include rental assistance, public housing, and home ownership assistance programs.
Health care access: Health care costs can be a major financial burden for many Americans, particularly those who do not have access to health insurance. The federal government and many state governments have implemented programs to ensure that all Americans have access to affordable health care, including Medicaid, the Children’s Health Insurance Program (CHIP), and the Affordable Care Act (ACA).
Paid family and medical leave: Many Americans do not have access to paid family and medical leave, which can make it difficult to take time off from work to care for a sick family member or new child. To address this issue, several states and local governments have implemented paid family and medical leave programs that provide workers with a certain amount of paid time off to care for themselves or their family members.
Transportation assistance: Transportation costs can be a significant financial burden for low-income individuals and families, particularly those who live in areas with limited public transportation options. The federal government and many state and local governments offer transportation assistance programs to help individuals and families afford transportation, such as discounted public transit passes and low-interest car loans.
Financial incentives for employers: Many employers are not able to offer their employees competitive wages and benefits due to financial constraints. To incentivize employers to provide better wages and benefits, some governments have implemented tax credits and other financial incentives for employers who offer their employees good wages, health insurance, and other benefits.

These are just a few more examples of government initiatives aimed at preventing Americans from living paycheck to paycheck. While these programs are important, there is still much work to be done to ensure that all Americans have access to the resources and support they need to achieve financial stability and security.

What should people Do to avoid Living Paycheck-to-Paycheck?

While there are many government initiatives aimed at preventing Americans from living paycheck to paycheck, there are also steps that individuals can take to avoid this situation. Here are some suggestions:

Create a budget: A budget is a financial plan that helps individuals manage their income and expenses. According to a survey by Bankrate, only 40% of Americans have a budget. However, creating a budget can help individuals save money and avoid overspending. For example, a person who creates a budget and sticks to it may be able to reduce their expenses by cutting back on non-essential purchases or negotiating bills.
Reduce expenses: According to a survey by GOBankingRates, the most common monthly expenses for Americans are housing, utilities, and food. However, there are many ways to reduce expenses and save money. For example, a person can reduce their housing costs by downsizing or moving to a cheaper neighborhood. They can reduce their food costs by cooking at home instead of eating out or buying generic brands instead of name brands.
Increase income: According to a survey by CareerBuilder, 78% of Americans live paycheck to paycheck, and 56% say they are in debt because their expenses exceed their income. Increasing income can help individuals achieve financial stability and security. For example, a person can take on a second job, start a side business, or negotiate a raise or promotion at their current job.
Build an emergency fund: An emergency fund is money set aside to cover unexpected expenses, such as medical bills or car repairs. According to a survey by Bankrate, only 41% of Americans have enough savings to cover a $1,000 emergency expense. However, building an emergency fund can help individuals avoid going into debt and achieve greater financial security. For example, a person can start by setting aside a small amount of money each month and gradually increasing the amount over time.
Pay off debt: According to a survey by Northwestern Mutual, the average American has over $38,000 in personal debt, excluding mortgage debt. Paying off debt can help individuals achieve greater financial stability and security. For example, a person can focus on paying off high-interest debt, such as credit card debt, and consider consolidating their debt or negotiating with creditors to reduce their interest rates and fees.
Invest in your future: Investing in your future can help you achieve long-term financial stability and security. For example, a person can save for retirement by contributing to a 401(k) or IRA, invest in education and training to improve their career prospects, or build a career that offers growth and advancement opportunities.
Seek financial education and counseling: According to a survey by the National Foundation for Credit Counseling, 33% of Americans do not have a budget, and 50% do not have a savings plan. Seeking financial education and counseling can help individuals learn how to manage their money more effectively and achieve greater financial stability and security. For example, a person can attend financial education workshops or seek counseling from a financial advisor or nonprofit organization.
Negotiate bills: Negotiating bills with service providers, such as internet or phone companies, can help individuals save money on monthly expenses. For example, a person can ask their service provider for a discount or look for alternative providers that offer better rates.
Use credit wisely: Using credit cards responsibly can help individuals avoid accumulating debt and improve their credit score. For example, a person can pay off their balance in full each month, avoid using credit cards for non-essential purchases, and keep their credit utilization low.
Prioritize saving: Prioritizing saving can help individuals build financial resilience and achieve their long-term goals. For example, a person can set a savings goal, such as saving for a down payment on a house or building an emergency fund, and create a plan to achieve it.
Practice frugality: Practicing frugality can help individuals save money and avoid overspending. For example, a person can adopt simple lifestyle changes, such as bringing lunch to work instead of eating out, using public transportation instead of driving, or shopping for bargains and discounts.
Seek assistance: In some cases, individuals may need assistance to manage their finances and avoid living paycheck to paycheck. For example, a person can seek assistance from a credit counselor, nonprofit organization, or government program that offers financial education, counseling, or assistance.
Automate savings: Automating savings can help individuals save money consistently and effortlessly. For example, a person can set up automatic transfers from their checking account to a savings account or retirement account each month.
Reduce debt: Reducing debt can help individuals free up more money to save and invest. For example, a person can create a plan to pay off high-interest debt, such as credit card debt or personal loans, and avoid taking on new debt.
Plan for unexpected expenses: Planning for unexpected expenses can help individuals avoid relying on credit or dipping into savings when emergencies arise. For example, a person can create an emergency fund that covers three to six months of living expenses or purchase insurance to protect against unexpected events, such as job loss or medical emergencies.
Track expenses: Tracking expenses can help individuals identify areas where they can reduce spending and save money. For example, a person can use a budgeting app or spreadsheet to track their income and expenses and analyze their spending habits.

Living paycheck to paycheck can be a stressful and challenging situation, but by taking control of their finances, individuals can improve their financial situation and achieve greater stability and security. By following these tips, individuals can reduce their expenses, increase their income, save money, and avoid relying on credit or loans to make ends meet.

In conclusion, living paycheck to paycheck is a common phenomenon in the United States, with a significant portion of the population struggling to make ends meet due to low wages, high expenses, and limited savings. This situation can lead to financial stress, debt, and insecurity, making it challenging for individuals to achieve their long-term financial goals and maintain a good quality of life.

While the government and employers have a role to play in addressing this issue, individuals can take steps to improve their financial situation by reducing expenses, increasing income, prioritizing savings, and practicing frugality. By creating a financial plan and taking control of their finances, individuals can achieve greater financial stability and security, and avoid relying on credit or loans to make ends meet.

Overall, living paycheck to paycheck is a complex issue that requires a multi-faceted approach to address effectively. By working together, individuals, employers, and government agencies can help ensure that all Americans have access to the resources they need to achieve financial stability and security.