Paycheck-to-Paycheck Surveys

LendingClub (60%)

The figure Sanders cites appears to come from the Paycheck-to-Paycheck Report, which was a series of monthly reports put out by LendingClub between June 2021 and December 2023. The methods of this report are opaque. LendingClub claims to have surveyed around 2,500 to 3,000 consumers for each report, but the reports do not make clear whether they are simply asking people if they live paycheck to paycheck or deducing this in some way using personal financial information. Nonetheless, the LendingClub report found that 52 percent to 64 percent of consumers lived paycheck to paycheck during the months they surveyed.

LendingClub defines someone as living paycheck to paycheck if they have “no money left over after spending their earnings.” Put differently, for LendingClub, someone is living paycheck to paycheck if they currently have a low savings rate. Thus, as they explain in their June 2021 report, “one can have a good chunk of money in the bank as well as a good salary and still struggle to make ends meet.”

BankRate (34%)

Another estimate comes from a YouGov survey commissioned by BankRate. I could not find the precise question that was asked in that survey, but, unlike the LendingClub report, the BankRate write-up of the survey makes it clear that they explicitly asked people whether they were living paycheck to paycheck and 34 percent of workers answered that they were.

The BankRate write-up defines “paycheck to paycheck” this way:

The expression, “living paycheck to paycheck,” generally refers to having little or no money for savings left over from your paycheck after covering your regular expenses. You might be unable to pay your bills if you suddenly become unemployed or don’t receive the next paycheck.

The first sentence of this definition refers to currently having a low savings rate, but the elaboration in the second sentence refers to someone who has a low level of emergency savings to draw upon in the case of a negative income shock. These are not the same thing, though I suppose it is literally true that the former “might” lead to the latter. So, as best as I can tell, BankRate, like LendingClub, is using a low savings rate definition for the term, though it is unclear whether the survey respondents were asked the question with this definition or just asked more generally whether they live paycheck to paycheck.

Bank of America (50% or 26%)

Yet another estimate comes from Bank of America. In a survey meant to be representative of the US population, Bank of America asked how strongly people agree or disagree with the statement “I am living paycheck to paycheck.” Just under 50 percent of people answered that they strongly or somewhat agreed. In this part of the report, the authors state that the phrase “living paycheck to paycheck” can refer to “individuals or households that regularly spend nearly all of their income, leaving little to nothing left over for savings.” This is the low savings rate definition.

In this same report, Bank of America analyzed bank account data for a sample of their customers in order to determine how many of them spend 95 percent or more of their household income on necessity spending, which they define as “childcare, external credit card payments, gasoline, general retail, grocery, housing (mortgage/rent), insurance, cable TV/broadband, public transportation, tax payments, vehicle costs and payments.” Using this method, they conclude that 26 percent of people live paycheck to paycheck so defined.

Bank of America does not present the 26 percent figure as a debunking of the 50 percent figure. Instead, they point out that their lower number reflects their “focus on necessity spending,” ostensibly meaning they recognize that their particular definition of paycheck-to-paycheck living is very narrow. Another limitation of the 26 percent figure is that it comes from a sample of Bank of America customers, which are not representative of the overall population, and, even among those customers, they only have access to the income and spending information that those customers run through their Bank of America accounts. For instance, customers that are also doing necessity spending on a Citi credit card that they carry a balance for will end up miscounted.

This necessity-spending approach is seemingly intended to provide an extreme measurement aimed at establishing an absolute lower bound of possible estimates. Thus, the authors of the report conclude that, despite the extremity of their definition, which cuts the self-reported paycheck-to-paycheck figure in half, their findings “are significant and do suggest a relatively large proportion of households are living paycheck to paycheck.”

Conceptual Issues

Already in the three reports above, we see one of the problems with this discourse: the phrase “living paycheck to paycheck” is ambiguous. The Bank of America report calls this out explicitly, stating that the phrase is “somewhat nebulous and is not always clearly defined.” Across the three reports, we see at least three different ways of understanding the term:

1. Low savings rate
2. High necessity spending rate
3. Low emergency savings level

These three things are related to one another, but not exactly the same.

There are also other complications with defining the phrase. For example, someone who currently lives off labor income and does not have enough money to retire could reasonably describe themselves as living “paycheck to paycheck.” How else are they living? Certainly not “dividend to dividend.”

Should the phrase apply to retired people who, by definition, do not receive paychecks? Do students live paycheck to paycheck? Disabled people? Stay-at-home parents? Kids? On any given month, around 50 percent of the population does not work. This includes 40 percent of adults aged eighteen and above as well as 25 percent of adults between the ages of eighteen and sixty-four. Do these people inherit the paycheck-to-paycheck status of their overall household or family unit? Or should we analyze them in a more individualized way?

I point this all out only to illustrate that, when we move away from looking at how people self-describe and start looking directly at personal financial data to determine how many people live paycheck to paycheck, there are lots of possible ways to do it, and many complications to work through.

Government Data

The most prominent critic of the idea that paycheck-to-paycheck living is very common is Matt Darling. His rebuttal typically consists of two figures from the Survey of Consumer Finances (SCF) and one survey question from the Survey of Household Economics and Decisionmaking (SHED). Both are government surveys conducted or sponsored by the Federal Reserve.

Survey of Consumer Finances

The first SCF figure Darling cites is median net worth, which in 2022, stood at $192,700. The problem with this figure is that it includes nonfinancial assets like one’s home and car and relatively illiquid financial assets like balances in retirement and education accounts. To address these problems, Darling provides a second SCF figure that more closely matches the financial resources people tend to think about as being available to them in the case of an emergency, i.e., their liquid financial assets. In 2022, median liquid assets stood at $7,850.

What’s interesting about this $7,850 figure is that Darling (and Ben Krauss) presents it as self-evidently debunking the paycheck-to-paycheck argument. But does it? The median income in the SCF data is $70,529. This means that median liquid savings is only forty days of median income. If you would run out of liquid savings in forty days, do you not live paycheck to paycheck? How few days does it need to be? Thirty days? Twenty days?

If we drop the elderly from the sample based on the observation that they are almost all retired and therefore not receiving any paychecks, the result is that median liquid savings fall to $6,700 and median income increases to $77,825. Thus, for the non-elderly who actually receive paychecks, liquid savings would only last thirty-one days at the median.

If we walk through each household and divide their liquid savings by their income to determine how many days of income they have in liquid savings, we can see what this looks like across the entire distribution (graph truncated at 80th percentile to keep the scale manageable).

Assuming the liquid-savings-to-income ratio is the right thing to look at, this is the best graph for assessing “paycheck-to-paycheck” status that there is. But where exactly do you draw the line for living paycheck to paycheck? At the 60th percentile, which is the figure Sanders likes to use, households have fifty-seven days of savings. For non-elderly households, it’s forty-six days of savings. The paycheck-to-paycheck claims just don’t seem that outlandish by this measure.

And this metric is using the SCF, which is a survey of household finances, not individual finances, and which defines households using a “primary economic unit” concept that effectively excludes any adult that is not the economically dominant individual or couple in their household. So, struggling young adults who live with mom and dad are not independently surveyed and are instead lumped in with their parents. Adjusting further for that would knock a few more days off all of these figures. So would weighting the results by individuals rather than households, as the former would end up counting minor children as among the population that lives paycheck to paycheck while the latter really does not.

Survey of Household Economics and Decisionmaking

The SHED figure that Darling likes to cite asks respondents the following question:

Have you set aside emergency or rainy day funds that would cover your expenses for 3 months in case of sickness, job loss, economic downturn, or other emergencies?

Around 54 percent of respondents answer yes while the other 46 percent answer no. From this, Darling concludes that at least 54 percent of Americans are not living paycheck to paycheck. But SHED asks these people other similar questions and the answers to those questions don’t line up well with the conclusion that these 54 percent of Americans can actually handle three months of expenses.

For instance, SHED asks the following:

Based on your current financial situation, what is the largest emergency expense that you could handle right now using only your savings?

The below graph contains the distribution of answers to this question among the 54 percent who say they have three months of emergency expenses saved up:

So, 24 percent of the people who say they have three months of emergency savings also say they cannot afford an emergency expense of $2,000 or more. If we divide $2,000 by three months, we get $667 per month. In 2023, the poverty line for a single adult was $1,215 per month and not all of these people are single adults. Is it really the case that someone can afford three months of expenses if they don’t have enough savings to cover three months worth of deep poverty living? I am skeptical to say the least.

If we define someone as living paycheck to paycheck if they either say they do not have three months of emergency savings or say they cannot afford a $2,000 emergency expense, then SHED tells us 59 percent of American adults are living paycheck to paycheck, which is of course just 1 point shy of the Sanders-favored 60 percent figure.

If we exclude the retired from this calculation, since they don’t receive paychecks, or assign the paycheck-to-paycheck status of adults to their minor children (children are not counted in SHED), the number would go even higher than that.

Of course, this is all using the low emergency savings level definition of “paycheck-to-paycheck” living, which seems to be Darling’s preferred approach. The SHED also asks people whether, in the last month, they spent more than, less than, or about the same amount as their income, which aligns with the low savings rate definition of “paycheck-to-paycheck” living. Fifty-two percent of respondents say they spent more than or the same amount as their income.

Conclusion

Given the inherent ambiguities of the phrase, I am certainly not going to try to argue that there is an obvious “real” number out there for paycheck-to-paycheck living, nor am I going to vouch for self-reported answers to that or similar questions in surveys. But at the same time, the idea that it is most definitely not 60 percent, that Sanders is being obviously crazy in saying that, seems pretty silly, especially after you probe the SCF and SHED data that is meant to debunk the claim.

As always, it’s important to also keep in mind what exactly are we implying when we even talk about living paycheck to paycheck. I am all for people having personal savings, but it’s also the case that, in a well-designed economic system, big financial shocks are smoothed over, not by one’s own personal assets, but through the welfare state. Large expenditures due to health problems should be handled by public health insurance. Income declines resulting from job loss or disability should be covered by unemployment and disability benefits. Economic security should not depend on an uninterrupted flow of paychecks and good health, but it also should not depend on building up large amounts of liquid assets.