Are you living paycheck to paycheck? Well, you’re not the only one after a new study by three academic economists discovered that 38 million households in the United States are living paycheck to paycheck, including 25.5 million that are described as middle class.
This means that millions of households have no cash savings. In addition, the middle class households, which have median salaries of $41,000, might own homes and maintain retirement accounts, but they do not have immediate access to their savings accounts.
Instead of setting aside funds in more liquid assets, they are investing their paychecks into illiquid assets, like retirement accounts and homes, because they expect a greater return on their investment down the line.
“This behavior might look on the face to be kind of crazy, but in some of our other work we show it looks like a very sensible thing to do, given the incentives to invest in retirement accounts and real estate,” said Greg Kaplan, assistant professor of economics at Princeton University, in an interview with CBS News.
The U.S. isn’t the only country with households living paycheck to paycheck. Some of the countries with high percentages of such households can be found in Canada, the United Kingdom and Germany. The report noted that Australia was one of the few Western countries to have very little paycheck to paycheck households.
According to the study authors, the purpose of the research was to determine how certain fiscal policies help households and stimulate the economy.