60% of americans live paycheck to paycheck: how to stop the cycle and teach financial literacy to your kids

Modak
January 13, 2025

Main takeaways

- 60% of Americans live paycheck to paycheck across all income levels, making financial management and literacy essential for breaking the cycle.

- Rising rent, debt, and poor financial education contribute to instability, but budgeting, saving, and debt management can help.

- Teaching kids financial literacy since an early age and building responsible money habits, set them up for future financial success.

Recent studies have revealed a startling statistic: approximately 60% of Americans are living paycheck to paycheck according to: CNBC. This represents a significant portion of the population—across various income levels—who face ongoing financial challenges. The data paints a troubling picture of the financial state of the nation, but it also highlights an opportunity for change. By understanding the root causes of this phenomenon and exploring effective money management strategies, individuals may be able to reduce reliance on living paycheck to paycheck.

More importantly, it’s never too early to start teaching kids about money. Financial literacy is a critical life skill that can equip the next generation to make informed financial decisions and work towards avoiding the same pitfalls and building a more secure financial future.  This is where Modak comes in—our platform offers tools and resources to support parents in teaching their kids sound financial habits from a young age, helping them build a foundation for financial success in an increasingly challenging economic environment.

In this article, we’ll break down the current trend of living paycheck to paycheck, explore ways to improve your financial situation, and show you how to start teaching your kids about money with Modak’s unique tools.

How many americans live paycheck to paycheck?

According to recent research from the Bank of America Institute, an alarming 60% of Americans are currently living paycheck to paycheck. This statistic is not just limited to lower-income households but spans across all income levels, affecting both high earners and those with more modest salaries. The percentage of Americans living paycheck to paycheck has increased by 10% since 2019, which may reflect the growing financial pressures faced by some families in recent years.

Why are so many americans living paycheck to paycheck?

Several factors contribute to this widespread financial insecurity, including rising living costs, stagnant wages, and the growing burden of debt. Even individuals with steady or higher incomes may find it challenging to save or build wealth due to high living expenses, particularly for necessities such as rent, healthcare, and childcare. These costs, which have risen in recent years, can significantly impact financial stability.

Key factors contributing to the paycheck-to-paycheck cycle:

  • High rent and housing costs:  In many cities, rent growth has outpaced wage increases, leading households to allocate a significant portion of their income to housing. While financial guidelines recommend spending no more than 30% of income on rent, a recent analysis by Zillow and the Bureau of Labor Statistics examines how this benchmark is applied in practice. However, this may not be achievable for families in high-cost areas, where housing expenses can consume a disproportionate share of earnings.
  • Debt and loan payments: Monthly obligations such as student loans, credit card payments, and car loans can significantly impact disposable income. These debts often limit the ability to save or build emergency funds, particularly as interest rates and repayment requirements increase for many borrowers.
  • Lack of financial education: A lack of access to comprehensive financial education can make it challenging for individuals to manage their income effectively. Without strategies for budgeting, saving, or planning, it is easy to overspend or overlook opportunities to build long-term financial stability.

Unforeseen expenses: Unexpected costs, such as medical bills or car repairs, can quickly derail financial plans and send families back into the paycheck-to-paycheck cycle. For many families, these expenses can lead to renewed financial instability or deepen reliance on credit.

The impact of living paycheck to paycheck

Living paycheck to paycheck is stressful. It leaves little room for savings or emergency funds, making it harder to weather unexpected expenses or plan for the future. This cycle can affect physical and mental health, relationships, and overall quality of life.

According to Bank of America Institute’s research, the percentage of families living paycheck to paycheck in the US has grown across all income levels. Even among households making six figures, 25% are still living paycheck to paycheck.

How to stop living paycheck to paycheck

Breaking free from the paycheck-to-paycheck cycle isn’t easy, but it’s possible with the right strategies and consistent effort, it’s possible to improve your financial situation. Here are a few steps you can take to improve your financial situation and build a more secure future:

Mum teaching his son about saving

1. Create a budget and stick to it

Creating a budget is a powerful tool that can help you regain control over your finances and work toward breaking the paycheck-to-paycheck cycle.

A budget helps you understand exactly where your money is going each month, and it gives you control over your spending. Here’s how to start:

  • Track your income and expenses: Start by listing all your sources of income and categorizing your expenses, such as rent, utilities, groceries, and entertainment. This will help you identify where your money is going each month.
  • Follow the 50/30/20 rule: As a general guideline, aim to allocate 50% of your income toward essential needs (like housing, utilities, and food), 30% toward discretionary spending (such as entertainment or dining out), and 20% toward savings or debt repayment. Adjust these percentages as needed based on your unique financial situation.
  • Cut unnecessary expenses: Look for areas where you can reduce spending, such as dining out, subscriptions, or impulse buys. Even small savings can add up over time.

How Modak helps you teach your kids financial literacy

- Modak supports you in teaching your kids money management by setting allowances and tracking savings goals.

- It encourages kids to engage with money concepts by helping them set and track savings goals, fostering an understanding of budgeting and saving.

- You can easily monitor your child's financial progress, ensuring they develop healthy money habits that will last.

2. Save for emergencies

Emergencies happen, and without an emergency fund, you may find yourself back in the paycheck-to-paycheck cycle every time an unexpected expense arises. Financial experts recommend having at least three to six months' worth of living expenses saved in case of an emergency. While this goal may take time, starting with smaller, consistent contributions can help you build a safety net.

3. Pay off debt

Debt is one of the primary reasons people live paycheck to paycheck. Try to prioritize paying off high-interest debt (like credit cards) first. Consider using the debt snowball method, where you pay off your smallest debts first, or the debt avalanche method, where you tackle high-interest debts first.

Emergency fund fill up with coins

4. Consider multiple income streams

Relying on a single paycheck can make it difficult to break free from financial insecurity. By creating several income streams, you can increase your earning potential and reduce the risk of financial instability. This might include side gigs, freelancing, or investing.

5. Automate savings

If you struggle to save money each month, consider automating your savings. Set up an automatic transfer from your checking account to a savings or investment account. This ensures that you save first before spending.

How much of your paycheck should go to rent?

A common question among those living paycheck to paycheck is, "How much of your paycheck should go to rent?" The general rule of thumb is that 30% of your income should go toward housing costs. However, this can vary depending on where you live and your income level.

  • In high-cost areas: If you live in a city with a high cost of living, you may end up spending more than 30% of your paycheck on rent. In these cases, it’s essential to adjust other areas of your budget to accommodate housing costs or consider relocating to a more affordable area.
  • Rent vs. income: The key is to avoid spending more than half of your income on housing. If your rent is consuming more than 50% of your paycheck, it may be time to rethink your housing situation.

Teaching your kids financial literacy with Modak

Teaching financial literacy from a young age is a valuable way to help children develop strong money management skills and reduce the likelihood of falling into financial stress later in life. Modak, is a  platform designed to help parents manage their kids’ financial education, it is the perfect tool for teaching responsible money management.

How Modak can Help teach financial responsibility

  • Allowance management: With Modak, parents can easily assign age-appropriate chores and set up allowances for their children. This helps kids understand the connection between earning money and taking responsibility.
  • Savings goals: Kids can set and track savings goals directly in the app, teaching them how to budget and prioritize savings early on.
  • Financial challenges: Modak offers interactive challenges that engage kids in learning about money, savings, and responsible spending, building habits that will last a lifetime.

By incorporating these lessons into everyday life, your children will develop a healthy attitude toward money and avoid the financial stress that many adults face today.

Conclusion

Living paycheck to paycheck is a serious issue affecting a large portion of Americans today. However, with the right strategies—like creating a budget, reducing debt, saving for emergencies, and diversifying income—it’s possible to break free from this cycle and achieve financial stability. More importantly, teaching financial literacy to kids from an early age can set them up for success and ensure they avoid the same struggles.

With Modak’s unique tools, parents can start teaching their children how to manage money responsibly, providing them with the skills they need to live a financially secure life. By taking control of your financial future today, you can build a solid foundation for yourself and your family for years to come.

  1. Checking account and the Modak Visa® debit card issued by Lewis & Clark Bank, Member FDIC. Funds deposited into checking account may be eligible for up to $250,000 of FDIC insurance. The FDIC’s deposit insurance coverage only protects against the failure of an FDIC-insured depository institution.
  2. 100 MBX = $1(as of June 2024). This is an approximation and not a guaranteed result. For more information on MBX, visit: Click here for more information on MBX
  3. Walking 5,000 steps a day gives users 10MBX (as of June 2024). This is subject to change at Modak’s discretion
  4. Fees for expedited or premium services may apply. Find out more in our Cardholder agreement.

Follow us on social media:

Related articles

Browse all articles