NYU, Princeton professors pen income analysis paper
March 25, 2014
Professors from NYU and Princeton University published a paper through the Brookings Institute on March 20 that describes “the wealthy hand-to-mouth,” a substantial group of people who live above the poverty line but pay living expenses on a paycheck-to-paycheck basis on.
The people in this group keep their money in the form of assets rather than liquid — or easily accessible — wealth. Thus, their spending depends heavily on income changes, which has broad impacts for fiscal policy.
The authors of the paper are Greg Kaplan and Justin Weidner, an economics professor and graduate student at Princeton, respectively, and Giovanni Violante, an economics professor at NYU.
Violante said the paper was based on research data gathered from households both domestically and abroad.
“We used survey data on household portfolios that contain detailed information on household holdings of liquid assets such as cash, bank accounts and direct holdings of stocks and bonds, as well as … housing and retirement wealth tied up in 401(k)s,” Violante said. “We collected data for the [United States], Canada, Australia and the [United Kingdom], and the four major economies of the Euro area — Germany, France, Italy and Spain.”
The median annual income for the wealthy hand-to-mouth in the United States is $47,040. There are more people with this income living paycheck to paycheck in the United States than those with lower incomes, according to the paper.
Violante said the paper’s findings may come as a surprise to some, as many of the people interviewed do not fit the stereotypical image of low-income families. Instead, Violante said these wealthy hand-to-mouth have a tendency to be educated, two-spouse families in their 40s. These families are technically middle class, but are still living paycheck to paycheck.
“They own nontrivial amounts of wealth that is tied up in housing and retirement account, and they spend most or all of their monthly earnings in mortgage payments and other consumption commitments, such as school fees for their kids [and] car loan payments,” Violante said.
The classification of wealthy hand-to-mouth lasts an average of only 29 months. When compared with other groups, these people are most likely to change their financial status and move out of the group, according to the paper.
LS sophomore Jack Zabelny said he is familiar with the situation of the wealthy hand-to-mouth and that fiscal policy and tax brackets can affect this group’s ability to advance its economic standing.
“The people described as [wealthy hand-to-mouth] are also very limited in their economic impact,” Zabelny said. “They are limited to paying for and buying necessities.”
CAS sophomore and economics major Maks Fiedziukiewicz said the wealthy hand-to-mouth lifestyle may sometimes be necessary, but it is not sustainable for the economy.
“I believe it is important to save money and hold a buffer for when life gets hard,” Fiedziukiewicz said. “That way people don’t buy houses they can’t afford and don’t fall into ban
A version of this article appeared in the Tuesday, March 25 print edition. Additional reporting by Ann Schmidt and Valentina Duque Bojanini. Claire Scimeca is a contributing writer. Email them at [email protected]