They have decent salaries. Many own homes and have retirement accounts. But they don't have a lot of savings or readily accessible funds, according to a recent economic study presented by the Brookings Institution.
About one-third of American households live "hand-to-mouth," meaning that they spend all their paychecks. But what surprised the study authors is that 66 percent of these families are middle class, with a median income of $41,000. While they don't have liquid assets, such as savings accounts or mutual fund holdings, they do have homes and retirement accounts, with a median net worth of $41,000.
Poor hand-to-mouth households, by contrast, typically have incomes of $21,000 and no assets. Families that don't live paycheck to paycheck have incomes of $51,000 and assets of $116,000.
Those living paycheck to paycheck have a tougher time weathering income shocks, such as illnesses or bouts of unemployment. The study found that they have to cut back their spending far more than those with a reserve they can tap more readily.
The research shows that around one-third of all U.S. households live hand-to-mouth (around 38 million households in 2010, based on 117 million households in 2010, Census Bureau), and of that group, over two-thirds are indeed wealthy-hand-to-mouth. While poor-hand-to-mouth households are most frequently young with low incomes, the wealthy-hand-to-mouth are older (peaking around age 40), have high incomes (similar to the non-hand-to-mouth) and hold substantial illiquid assets (at age 40, around $50,000 on average).
In addition, wealthy-hand-to-mouth households hold portfolios that are very similar to the non-hand-to-mouth in terms of their shares of illiquid wealth held in housing and retirement accounts. Unlike the poor hand-to-mouth who tend to stay in this state for long periods of time, wealthy-hand-to-mouth status is transient, lasting an average of only 2.5 years.
Helpful resources: Cornerstone’s REAL Solutions initiative, which stands for Relevant, Effective, Asset-building, Loyalty-producing solutions.