Nearly one in four U.S. households now live paycheck to paycheck, as lower-income Americans spend most of their earnings on essentials like housing, gas, and groceries, according to new research from Bank of America. The study, released Tuesday, shows that 24% of households fall into this category in 2025 — a slight increase from last year — underscoring the persistent financial pressures on lower earners despite a resilient job market.
While the overall rate of financial strain has slowed, the concentration of hardship among low-income households continues to deepen. “The number of lower-income households (especially Millennials and Gen X) living paycheck to paycheck continues to rise while there is almost no increase in the number of higher- and middle-income households,” the report noted.
Lower-income households feel the pinch
The data reveals that 29% of lower-income families are living paycheck to paycheck, up from 28.6% in 2024 and 27.1% in 2023. Bank of America analysts attribute the increase largely to slowing wage growth among this group. “Why are we only seeing an increase in lower-income households? In our view, it’s likely due to slowing wage growth for this cohort,” the study’s authors wrote.
Since early 2025, wage gains for low-income workers have lagged behind those of higher earners, widening the financial gap. The study found that higher-income millennials have experienced wage growth five percentage points faster than lower-income millennials, exacerbating generational inequality.
By age group, middle-aged Americans — particularly Millennials and Gen X — are increasingly reliant on each paycheck to cover daily expenses, highlighting the uneven nature of the current economic recovery.
A “K-shaped” economic divide
The findings illustrate the growing divide in what economists describe as a “K-shaped economy,” where higher-income households continue to thrive while lower-income consumers struggle. B. Riley Wealth chief market strategist Art Hogan told Yahoo Finance that the trend is emblematic of broader imbalances in U.S. consumption. “It’s very bifurcated, and I think that’s reflective of what we’re seeing in the economy and consumers in general,” Hogan said.
Data from consumer spending patterns show that upper-income households — those holding financial assets and investments — continue to drive overall consumption growth, while lower-income Americans cut back on discretionary purchases to prioritize essentials.
As a result, the consumer landscape is fragmenting. Analysts warn that the spending power of lower-income consumers is being eroded by persistently high rents, childcare costs, and food inflation, creating challenges for retailers and restaurants that rely on broad-based demand.
Corporate warnings on consumer strain
Major consumer goods and restaurant companies have echoed similar concerns. Executives at McDonald’s (MCD) and Chipotle (CMG) recently cited widening spending disparities across income groups. “Think about the low-income consumer and the pressures that they face — rents are at pretty high levels, food prices, whether it’s in restaurants or grocery, childcare is high,” said McDonald’s CEO Chris Kempczinski last week.
Chipotle Chief Operating Officer Scott Boatwright added that a slowdown initially seen across all income brackets earlier this year has now widened, “with low- to middle-income guests further reducing frequency.” Consumer staples companies (XLP) have also flagged similar trends, noting slower volume growth among value-focused shoppers.
Economists warn that unless wage growth strengthens for lower-income groups, the gap between high- and low-income households will continue to shape spending patterns well into 2026. For now, the Bank of America report underscores a persistent reality: millions of Americans remain one paycheck away from financial instability, even as the broader economy shows signs of strength.
