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Scraping By?

Richard Quinn, 1:23 pm ET

LIVING PAYCHECK to paycheck is defined as spending “all of the money from one paycheck before receiving the next paycheck.” But living that way doesn’t have much to do with income level, even though the idea is often presented that way.

One study says 53% of those earning between $50,000 and $100,000 live paycheck to paycheck, including 70% of millennials. The popular claim is that 50% of Americans are just scraping by. To that, I say, “balderdash.”

Here’s the flaw that applies to all except those in the lowest income brackets: The “spend” part of the definition includes all spending, not just on necessities. Spending can eat up an entire paycheck without it being a sign of financial distress.

Come to think of it, although retired, I live paycheck to paycheck. My pay is all spent after paying for two homes, two cars, vacations and funding my grandkids’ 529 plans.

Are there Americans who struggle to cover the basics? Of course. A study, based on Bureau of Labor Statistics’ data, says the lowest 20% of earners do spend 100% of their incomes from all sources. But even then, their annual spending includes more than $2,700 on eating out and entertainment.

One bit of research claims Americans spend $1,497 a month on non-necessities. Much of this money goes toward eating out, which—the survey claims—consumes an average $787.28 a month. Another study says the average American spends $697 a month on non-necessities, with millennials running higher at $838 a month. If millennials invested half of that extra spending, they’d have more than $600,000 after 30 years, assuming an 8% annual return.

If you doubt my curmudgeonly observations, stroll the streets of any town. Count the businesses providing decidedly beyond-the-basic goods and services—as well as those selling lottery tickets.

Admittedly, these spending numbers are based on surveys that are questionable in accuracy. In this case, however, I’m betting they understate true spending. How many people will say they can’t come up with $400 to cover a financial emergency and then admit they spend $30 a week on designer coffee?

Looking at only one-half of the income-and-spending equation leads to distorted policies—like a family of four earning $300,000 a year receiving government payments from the child-care tax credit.

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CJ
CJ
12 days ago

To me, eating out is a treat. An occasional night out. I can’t believe how many people eat out (or take out from pricey restaurants) multiple times a week. I could never have saved for retirement doing that, or getting hair/nails done frequently, Starbucks or any of the other treats people consider “necessities” they’re entitled to, all the while crying poverty.

I 1000% agree that child subsidies, health subsidies and other programs need to be means tested. So frustrated that folks earning more than me, who have more investment assets than me, are getting handouts while I work for every dollar. (SS is the exception, as we each pay into that – it’s not an entitlement program like the others.)

If you’re not deep in mortgage debt or have kids, chances are you’ll pay more than your fair share.

Last edited 12 days ago by CJ
George Counihan
George Counihan
12 days ago

Couldn’t agree more Richard … amazed when I drive past a local shopping plaza that includes a nail salon, a bake shop that only sells fancy cupcakes, a tanning salon, a gun shop, a beauty parlor, a yoga studio and assorted restaurants … none of which I consider “necessities!

S.C Fong
S.C Fong
13 days ago

Great point however as a millennial saving up here in London and still living at home, eating out actually becomes one of the few ways to catch up with friends consistently. Almost like drinking alcohol, there is a social benefit to meeting up with friends and it’s a cost many millennials suffer. Of course, if I had my own place, I’d be more inclined to invite them round but with house prices so out of reach, saving the roughly £40 a month I might spend eating out doesn’t make a dent in the overall deposit required.

Andrew Forsythe
Andrew Forsythe
13 days ago

Dick, I am likewise continually astonished at how much Americans—of all income levels—spend on eating out. In my long ago carefree bachelor days, I did way too much of it myself, maybe because it’s such a social thing (pre-pandemic anyway).

I’m lucky to have a wife who is a superb cook, and I’m a fair hand, so these days when we do venture out to a restaurant, not only is there the shock of the bill ($22 wagu hamburgers anyone?) but also disappointment in the meals. Most of the time we leave the restaurant saying, “We could’ve done better than that!”

As to your last paragraph, I’m hoping that as the parties try to reach a compromise on the benefit levels in the President’s plan, the first thing they look at is more realistic means testing.

R Quinn
R Quinn
13 days ago

I agree on both counts. I do the shopping and most of the cooking, so I realize the need for a break now and then. I have no qualms helping those in need, I just wish more was aimed at getting people out of that need. I read some one who brags on his blog that they retired at 33 with three children and have $2.7 million in investments but pay $1.00 for health plans under the ACA because he keeps his reported income low enough to be “poor” as he says.

Randy Dobkin
Randy Dobkin
12 days ago
Reply to  R Quinn

If the US had a decent health care system, we wouldn’t need these subsidies. I for one am hoping to qualify for Medicare in 3 years rather than 8.

macropundit
macropundit
11 days ago
Reply to  Randy Dobkin

Though there is a lot to be desired, I think one of the problems is that people think in terms of a “health care system”, as a monolithic blob. That’s a large part of the problem. The US is unlike any other country in that the socialized systems that so many pine for are on a vastly smaller scale. And even at a vastly smaller scale, take Sweden (US population is 30 times that of Sweden) where private insurance was introduced in 2010 and continues to expand due to the low number of hospitals, long waiting times, and their appropriate priority treatment of emergency cases first. There are no free lunches nor magic bullets.

parkslope
parkslope
13 days ago
Reply to  R Quinn

The wealthy take advantage of many loopholes. I think it is clear that the amount that is needlessly paid in benefits to the rich pales in comparison to the amount of taxes they avoid by exploiting loopholes that Congress didn’t intend for them to benefit from.

Dwayne 73
Dwayne 73
10 days ago
Reply to  parkslope

Loopholes like: various child tax credits and deductions, standard deduction, 401Ks & IRAs, medical deduction, home energy tax credits, low income housing credits, medical premium tax credits, work related tax credits, property tax deduction (although, Trump raised the standard deduction high enough that most people would not hit the SALT limits), moving expenses, student loan interest exemption, teacher expenses deductions, sale of your home exemptions, inheritance exemption, and many more.

All of these are available to everybody that qualifies and not everybody who qualifies is “wealthy”. In fact, some of these are for low income people only.

So, needless to say, the benefits that are available to low income earners far exceed that amount of taxes they pay. On August 21, 2021, the Tax Policy Center reported that 60.6% of US households did not pay any taxes in 2020. WHAT A LOOPHOLE!

I am just guessing that those other 39.4% are the wealthy who are paying the taxes for the other 60.6% who paid no taxes?

The wealthy and the poor are hopefully, legally, just taking advantage of the laws that your elected representatives help write in Congress.

R Quinn
R Quinn
13 days ago
Reply to  parkslope

There is no such thing as a loophole. There are provisions of the IRC that allow certain actions by anyone to minimize, defer or avoid taxes and most of them benefit very average people. The dollars involved may be vastly different, but the concept is the same.

Last edited 12 days ago by R Quinn
parkslope
parkslope
12 days ago
Reply to  R Quinn

Loophole
: a means of escape
especially: an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded
https://www.merriam-webster.com/dictionary/loophole

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