Tags: Millions | Wealthy | Households | Hand-to-Mouth

Study: Millions of 'Wealthy' Households Live Hand-to-Mouth

By John Morgan   |   Sunday, 23 Mar 2014 05:02 PM

Living paycheck to paycheck is not just for the poor. A new academic study suggests that 38 million American households are living with no cushion, including some who would otherwise be regarded as wealthy.

“The Wealthy Hand-to-Mouth,” a paper by economists Greg Kaplan and Justin Weidner of Princeton University and Giovanni Violante of New York University, concludes America’s poor are far from alone in their lack of resources.

The wealthy hand-to-mouth (or W-HtM as the paper likes to call them) actually own at least $50,000 on average in illiquid assets such as homes, cars, and retirement accounts that they cannot access easily, the economists found.

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The wealthy are portrayed in the study as making up two-thirds of the total hand-to-
mouth households in the United States – easily outnumbering the actual poor. Their average profile is that they are older, make more money, are better educated and more likely to be married than the poor hand-to-mouths.

Does this mean government stimulus measures aimed to help the poor are and boost the economy are wasted on the wealthy hand-to-mouths?

No, according to The Washington Post’s analysis of the study: “Economic stimulus programs are typically targeted toward the poor, since they are the most likely to immediately spend cash windfalls on necessities that they'd otherwise be constrained against buying. But this study implies that wealthier hand-to-mouth households, because they face similar monthly constraints on their spending, would also respond positively to economic stimulus.”

The United State is not the only country with wealthy hand-to-mouth households, the Princeton-NYU economists found. There are also substantial populations of them in all other countries they studied — Canada, Australia, the U.K., Germany, France, Italy, and Spain.

The paper concludes that wealthy hand-to-mouth households in the U.S. do not last long – on average, they endure only 2.5 years each. That finding suggests those households then either migrate upward to wealthy status with some liquid savings, or they sink to poor hand-to-mouth status.

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