If there are 25 million middle class Americans living paycheck to paycheck, as Tami Luhby’s CNN Money report asserts, that means these folks are much more vulnerable if something bad happens. Getting sick might mean medical bills. (It’s the same with being injured in an accident: medical bills.) Ditto for losing your job or simply losing wages or income while recovering, going through the expense of divorce, or a failed business or real estate investment.
Luhby’s report comes via a Brookings Institution study, which apparently surprised the authors when they found out that so many middle class Americans are living paycheck to paycheck.
It’s called “hand to mouth,” where these Americans – millions of them – spend all their paychecks and have a tough time socking a portion away toward savings, that emergency fund financial advisors are always going on about.
But part of the story is that many middle class Americans have their paychecks tied up in homes and retirement accounts. Luhby quotes Princeton economics professor Mark Aguiar: “The typical homeowner knows they are making a big investment in their house, which soaks up a lot of their disposable income but can also be their primary asset when they retire.”