More Americans Living Paycheck to Paycheck as Costs Rise
An increasing number of Americans with lower incomes are finding it harder to stay financially afloat as their earnings fail to keep pace with rising prices, according to a new analysis.
Data from the Bank of America Institute shows that about 29% of low-income households are now living paycheck to paycheck, up slightly from 2024 and from 27.1% in 2023. The institute defines living paycheck to paycheck as spending more than 95% of household income on basic needs, including housing, fuel, food, utilities and internet access.
Overall, Bank of America estimates that nearly one-quarter of all U.S. households were living paycheck to paycheck in 2025. Several trends help explain why more families are falling behind.
To start, the annual inflation rate has risen to 3% this year after dropping to 2.3% in April. While this year’s increase is far below the 9.1% peak reached in 2022 during the pandemic, it still exceeds the Federal Reserve’s 2% target.
“Inflation is picking back up again, and cost increases are picking back up again,” said Joe Wadford, an economist at the Bank of America Institute, which recently analyzed financial pressures by income group. “That’s definitely going to put some renewed pressure on those households.”
Another challenge is that the cost of food and other necessities continues to rise even as wages for lower-income workers remain flat. Bank of America’s deposit data shows that in October, pay for low-income households was only 1% higher than a year earlier.
“The gap between their wages and expenses has just continued to widen since the beginning of the year,” Wadford said. “When the cost of living is increasing 3% but your wages are only increasing 1%, you’re just going to really struggle to keep up.”
Lower-wage workers saw strong pay gains during the pandemic and the recovery period that followed, but that momentum has slowed dramatically since late 2022, said Elise Gould, a senior economist at the Economic Policy Institute. One reason is a drop in job openings and in the number of workers voluntarily leaving their jobs.
“When people aren’t looking for other offers or quitting, that is going to cause wage growth to slow,” she said.
Bank of America Institute data shows that over the 12 months ending in October, higher-income millennial households experienced wage growth that was five percentage points faster than that of lower-income millennials.
As a result, although low-income households are finding it increasingly difficult to make ends meet, middle- and higher-income families remain on stronger financial ground due to more robust wage increases. For these groups, the share of households living paycheck to paycheck has barely budged, according to the institute.
“These higher-income cohorts are more able to absorb the recent reacceleration in inflation due to their outsized wage growth,” Wadford wrote in the report.
This widening divide reflects what economists describe as a “K-shaped economy,” a term used to capture the growing split in spending patterns and financial well-being between more affluent Americans and those earning less.
Gould added that many low-income individuals do not have bank accounts, meaning that Bank of America’s depositor data may not fully reflect the strain faced by the nation’s poorest households.
“You’re missing some of the bottom end and how much pain [and] economic distress they may be feeling,” she said.
