A growing share of Americans are struggling to stretch their incomes to the month’s end. A new report from the Bank of America Institute reveals that about 24% of US households are now living pay cheque to pay cheque, which is the highest level in years.
The rise from last year is modest at 0.3 percentage points, the trend explains how everyday costs continue to outpace many families’ earnings.
Rising costs affecting families
The report defines pay cheque-to-pay cheque living as households spending 95% or more of their income on unavoidable bills,, think housing, groceries, fuel, utilities, internet and childcare.
That leaves almost nothing for savings or extras. Joe Wadford, an economist at the Bank of America Institute, explained that the pressures have not eased for those at the bottom of the income ladder.
“That’s because it seems like a lot of the financial stress that has been increasing has been concentrated in these lower-income households as these families struggle to keep up with cost increases,” he told Fox Business.
He added that while the pace of increase has slowed, the underlying financial strain remains.
Is inflation the reason?
Since early 2025, price increases have once again begun outpacing wage growth for low- and middle-income earners. That has pushed the share of lower-income families living pay cheque to pay cheque to 29%, up from 27.1% in 2023.
Wadford explained that for these households, even a small imbalance becomes extremely concerning. “Put another way, if your bills are increasing by $300, but you’re only making $100 more, how are you supposed to keep up with that? And I think the short answer is that some families are really struggling to,”he told Fox Business.
He said that inflation remains the primary force widening this gap.
Higher earners also feel the crunch
It is not only low-income families feeling the squeeze. Around 19% of higher-income households are also living pay cheque to pay cheque, though the reasons differ. Wadford pointed to “lifestyle creep,” which means spending rising just as fast as income.
Wadford described the mindset as, “you upgrade your home, you take on car payments — and before you realize it, every extra dollar has found a bill to attach itself to,” he told Fox Business.
The impact of K-shaped economy
According to Equifax, a K-shaped economy is when different parts of the economy recover at very different speeds after something bad happens, like a recession.
Some industries and people do very well and grow stronger; this is the top part of the “K.” For example, technology companies and high-income workers may see more success and money.
But other industries and workers continue to struggle; this is the bottom part of the “K”. Sectors like hospitality, retail, and small businesses may face job cuts, low wages, and higher living costs. Because of this uneven recovery, the gap between the rich and the poor becomes bigger, and inequality increases.
The report warns of a widening wage gap between higher- and lower-income workers, which is now the largest since 2016. Wadford called today’s pattern a K-shaped economy, where one group continues to climb while the other remains stuck or slides backward.
“As long as you continue to see this gap between higher-income wage growth and lower-income wage growth, you’re going to continue to see this,” he added.
