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63% of Americans live paycheck to paycheck. Given the high cost of living and the financial pressures most Americans are under, this isn't exactly shocking. However, what is surprising is that, according to a Goldman Sachs survey, 40% of working Americans who earn more than $500,000 a year also say they live paycheck to paycheck. So, the survey defined living " paycheck to paycheck " as difficulty in achieving any long-term financial goals, not necessarily as running out of money before payday. But to some extent, that's the point A person can earn half a million dollars a year and still genuinely feel like they're running on a treadmill, trying to keep up. This may seem like a problem that most people would gladly trade their own troubles for, but there's
more going on here than just the rich feeling a little poor. Because such high-paid workers are at the top of a much larger group whose spending has become extremely important to the entire U.S. economy. The top 20% of American earners now account for about 60% of all consumer spending in the country, up from 50% in the 1990s. Meanwhile, everyone else has less money left after covering basic expenses. This means that the US economy is heavily dependent on the spending of a relatively small proportion of households. And if these households begin to feel less financially secure and cut back on spending, the effects could spread to businesses and workers across the economy. And beneath all this lies an even bigger story, related to
how the situation goes beyond the country's borders and affects the global economy. But to understand how American spending has become so important not just at home but around the world, we need to look at how the global economy works. So why does someone who makes half a million dollars a year in the US still feel bankrupt, and has it always been this way? Is all this spending really good for the economy and why does it depend so heavily on wealthy households? And finally, what would happen to the rest of the world if Americans stopped spending money? I have n't been to the doctor for years, even for a simple checkup. And honestly, the only reason I go to the dentist every 6 months is because they make me make an appointment for my
next visit before I even leave the office. Scheduling a doctor's appointment can seem like an incredibly daunting task, especially for something as simple as a physical exam. And more often than not, when you finally get through, they can't get you in for 3 weeks. This is where today's issue's sponsor-Zocdoc-comes to the rescue. Zocdoc lets you search and compare local doctors in your network right from your phone. They have over 150,000 professionals in all 50 states. But what I really like about their platform is the tons of reviews about each doctor. I don't know about you, but I used to think that you just go to the doctor who is available. They also reduce wait times: appointments usually happen within 24-72 hours
of making an appointment, which is even faster and more convenient than at my dentist. Visit www.zocdoc.com/ee or click on the link in the description. Honestly, it's hard to say for sure whether the paycheck-to- paycheck economy has always been this bad, because all polls ask this question a little differently. But the comparisons we have are quite impressive. Back in 2012, only about 12% of workers with incomes over $100,000 said they lived paycheck to paycheck. This year, it's already 41% of people with incomes between $100,000 and $250,000. Of course, these numbers are taken from various surveys, and $100,000 does n't buy as much now as it did
in 2012. But it's still a huge leap. So are Americans really living worse off than before? Well, not quite. American households are actually in better shape than they were a decade ago. In 2013, about half of adults could not cover an unexpected expense of $400 in cash. By 2025, this figure had dropped to 37%. And when Bank of America analyzed actual account data, instead of asking people about their feelings, it found that only about a quarter of households spend almost all of their income on necessities. So, the very feeling of the situation worsened. Expectations have changed, and especially for high-paid workers, what they consider necessary is becoming closer to what they actually earn. So how does this happen? Okay, let's say you just
got a job with a salary of half a million dollars a year. Congratulations, you're now among the top few percent of Americans and are probably already looking at houses. But you're almost certainly not looking for a house in Ohio. Work with such pay is concentrated in a few extremely expensive metropolitan areas, such as New York, San Francisco, and Los Angeles. Places where the cost of living eats up your income faster than anything else. Rent and mortgage payments in these cities can easily reach fifty to ten thousand dollars per family, which sounds absurd, but that is exactly how much housing costs in areas where And as an Australian, I have no right to judge anyone else's housing market at all. And then the tax office appears. High
income means a high tax rate, and depending on the state, a significant portion of that $500,000 doesn't even end up in a bank account, let alone a savings account. But for this income group, the cost of living and taxes aren't the whole story. For people with lower incomes, these are the main limitations, the things that decide whether you can make ends meet. For someone who makes $500,000, the bigger factor is something behavioral, something called a " lifestyle creep." This is a phenomenon where luxury items gradually begin to be perceived as necessities as your income increases. When you make $500,000 a year, you stop comparing yourself to the average family and start comparing yourself to your surroundings. And in these expensive megacities,
the people around you may be earning two, five, or ten times more than you. So things that are objectively luxuries, like business class flights, private school for the kids, or renovations to an already very nice house, start to seem like basic requirements to keep up with the Zuckerbergs. Once these expectations are established, it's easy to see where the $500,000 disappears to. Each individual purchase-from high-end medicine to a dog with a personal trainer- seems appropriate in context, but together they add up to a lifestyle that consumes almost everything you get. These spending patterns create something quite interesting from an economic perspective. They form very intense, isolated pockets of consumption, almost like localized
inflation, where dinner at a restaurant can easily cost three or four hundred dollars in one part of the country, but be many times cheaper anywhere else. And then there are debts. Many high- income earners take out large mortgages car loans, expecting the high income to come in indefinitely, which is a risky bet if that income is dependent on an unstable industry or a single employer. For some, debt starts with student loans. A classic example is a doctor or lawyer who spent decades accumulating debt to get a degree that ultimately secured a large salary, and who is still paying off those debts even in their most profitable years. For others, it's just regular consumer debt. Even in the top 10% of earners, a group with a median income of about $390,000,
about one in four still carries credit card debt from month to month. Today's wealthy people have more things to spend money on, but it's also never been easier for them to borrow the money they need to buy them. So, the fact that rich people are spending more and more money must be good for the economy, right? More spending means more profits for businesses, more jobs, and consequently higher GDP. Well, yes, to a certain extent. Money should circulate in the economy, not sit idle, but anyone who's been stuck in the mud knows: spinning your wheels fast doesn't always get you anywhere. The ultimate goal of economics is not simply to "turn the wheels." This is not about spending money, but about improving your standard of living. And achieving
this is much more difficult than simply getting people to spend. Here's a little thought experiment. Let's say my producer Ryan is very rich, our screenwriter Marina is middle class, and I am poor. How can we all make things better? Let Ryan get even richer, hoping he'll invest money, come up with better ideas, and we'll all benefit from his technological breakthroughs? Should we redistribute some of the resources in favor of Marina and me? If I finally buy my first car , I will be able to commute, earn money, and participate in the economy in a way I couldn't before. If Ryan buys a tenth car, which he drives twice a year, the economy will record similar costs, but the actual improvement in life will be quite
different. There is no perfect formula for balancing these levers. This is the classic economist's answer: it all depends on the circumstances. Although this answer seems unsatisfactory, it points out something very important. We measure spending to calculate GDP, but the point is not about spending at all. GDP is supposed to measure the value of goods and services that a country produces. One way to measure it is to look at where these goods and services end up. Let's take a car made in the USA. If it is purchased by a household, it is considered consumption. If it is purchased by the government for its employee, it is considered government expenditure. If it is sold abroad, it is counted as an export.
And if it has been built but not yet sold, it is considered replenishment of inventories, which is included in investment. This is where the Consumption plus investment plus government spending plus exports minus imports. We subtract imports because other spending categories include things produced abroad. So, when calculating GDP in this way, we use spending and changes in inventories to measure production. Expenditure figures show how much the economy produced and where that output went. So, GDP is a pretty good indicator of production. But since everyone is watching the spending figure, you often hear, "We need to stimulate consumer spending." And
everyone assumes that this is always a good thing. In the short term, this approach has its advantages. If people have extra money and put it into circulation, it creates jobs and starts the economic mechanism. But it is also important when they spend them. During an economic downturn, businesses may keep workers and equipment idle because customers are not buying enough. In such a situation, additional costs can help to re- engage these capacities. So spending can really help during a recession when everyone is However, contrary to what many believe, when it comes to the super-rich, the economy doesn't actually need them to spend more.
Wealthy households spend a smaller share of each additional dollar they earn. Economists call this the low marginal propensity to consume. But even spending a smaller share, they already have vast amounts of resources at their disposal. You could even say that they already consume too much. Imagine a superyacht. When a billionaire buys it for his own pleasure, it can mean anywhere from $50 million to $150 million in resources. This is a huge amount of skilled labor by engineers and craftsmen, as well as huge mechanisms, specialized tools, and If the average cost of building a new home in the United States is around $428,000, that means over 100 homes could be built for the same money. The standard defense is that yacht building creates jobs, and that's true. But
building houses using the same resources would provide jobs for just as many people, and as a result, we would have housing for over 100 families instead of a boat for one person and a few of their closest friends. Through the lens of GDP, the yacht and the hypothetical houses look identical. You only notice the difference when you stop following the cost figures and look at what was actually built, who benefits from it, and what actually appeared in the world afterwards. And because GDP teaches us to focus on costs rather than outcomes, this distribution of funds is almost never seen as a problem in standard economic theory. Of course, to be fair, earning $500,000 a year doesn't make you a member of the superyacht owners' club, but the
same principle applies at any income level. What people spend money on matters as much as how much they spend, which leaves us with a somewhat paradoxical situation. More spending by the super-rich would n't make life much better for most people, but so many jobs depend on their spending that a sudden cut could hurt people across the economy. Remember the statistic that the richest 20% of people account for almost 60% of all consumer spending? This is the highest figure since Moody's began tracking it in 1989. And this group's spending is resting on a surprisingly shaky foundation. The richest 10% of American households own almost 90% of all stocks in the US market. These are not exactly the same families that make up the top 10% of earners, but they
overlap to a large extent. Their spending depends not only on their salaries, but also on how wealthy they feel when they check their investment portfolios. This is what economists call the wealth effect. When the stock market rises, people feel richer and spend more freely. When it falls, they feel poorer and limit their spending. So if the market takes a serious hit and this group decides to tighten their belts, the losses will go far beyond their budgets. They drag the entire economy down because their expenses are someone else's income. When a family from the top 10% dines at a restaurant, that money becomes the waiter's salary. When they send their child to a private school, the tuition becomes the teacher's salary. And each of them spends some of their
earnings on groceries, rent, or fuel, and the money continues to circulate in the economy. So, if a large group of wealthy people cut spending at the same time businesses that depend on them will be Workers in these businesses, who are now earning less or losing hours, are also cutting costs, which impacts the next sectors, and so on. This is a standard multiplier effect that operates to some extent in every downturn. What makes this situation more fragile than usual is the lack of a significant "safety cushion." For decades, wages for ordinary workers have barely increased. In 1979, the median weekly earnings for full-time employment were about $335. By 2016, adjusted for inflation, it was $345. It has since risen to about $378 this year,
but housing, medical and child care costs have absorbed most of that increase. And many households spend significantly more than they save. This habit took about 50 years to form, and for most of that time the government actively encouraged it. Remember the rhetoric during economic downturns. After 9/11, President Bush urged Americans to continue traveling and spending money, including famously advising them to visit Disney World. In early 2008, the government sent out refund checks designed to boost the economy. Over time, people have turned this advice into a broader assumption that spending money is always a good thing.
The problem is that the advice to "spend more" is an emergency medicine during an economic downturn. If you have a headache, you take a painkiller, but if you are completely healthy, you don't keep taking it just because it helped last time. Yet Americans' personal savings rate has fallen from about 9% in the early 1990s to about 5% in the last year, and in the mid-2000s, before the financial crisis itself, it was below 3%. Meanwhile, credit card debt has risen to about $1.2 trillion, suggesting that the U.S. economy has been under the influence of these "drugs" for decades, far longer than necessary. And this raises a more serious question. How did the United States end up in a situation where its economy seems to depend on
people consuming as much as possible? The answer becomes clear only when we look at the situation more broadly, beyond America. When it comes to the structure of their economies, the US and China are almost mirror images of each other. In the US, household consumption spending alone GDP. In China, this figure is about 40%. If you add government spending on services such as healthcare and defense, total final consumption in the US is 81% of the entire economy, while in China it is 57%. People in China want to have nice things just like anyone else. The difference is that relative to the country's production, Chinese households simply don't spend enough to consume it all. China is the manufacturing center of the world. It accounts for about 27% of
global industrial production-more than any other country, and at a speed and scale that are difficult to overestimate. So why are n't Chinese households spending more? Well, there are several reasons that complement each other. First, historical factors may have made many of them more cautious borrowers. Credit is available, but credit card usage is still relatively low compared to the US. People in China also typically have significantly lower incomes than Americans, even accounting for the difference in cost of living. In addition, there is a cultural and behavioral factor.
Chinese households tend to be much more conservative in financial matters, saving and investing for the next generation rather than spending money today. Expectations about future expenses, family responsibilities, and financial security influence how much people save. The history of mass poverty in China may influence these views, but most Americans have not experienced such poverty, at least not on this scale, and that is why many of them do not have an instinctive desire to save. And this has global consequences. If a country produces significantly more than its citizens buy, that surplus has to go somewhere. For a long time, a
significant part of it ended up in America. After the introduction of tariffs, this became less so, at least indirectly. The US goods trade deficit with China fell to about $202 billion in 2025, and about $150 billion of Chinese exports were redirected to Southeast Asia, Africa, the Gulf States, and Latin America. Some still reaches the US indirectly through third countries or in small packages that are But overall, the US still imports significantly more than it exports. The country is flooded with cheap imported goods, and American consumers, especially the wealthier ones, are ultimately playing the role of buyer of last resort for the world's surplus products. So, Americans' habit of consuming a lot is partly a personal choice, and yes, partly a
cultural aspect, but also a structural factor. At the macroeconomic level, someone has to absorb the output of the world's factories, and that responsibility has fallen on American consumers. But why the USA? Well, the answer largely lies in the dollar. Because the US dollar is the world's reserve currency, investors and central banks around the world seek to own American assets: government bonds, stocks, and real estate. So the dollars that America spends on imports flow back into the US as investment. This helps keep borrowing rates low and allows America to buy more than it sells, which means the US is largely structurally doomed to the role of global consumer. Meanwhile, half a million dollars a year is an extremely large
sum in China. At an exchange rate of about 7 yuan to the dollar, $500,000 is almost 77 times the average per capita income. So, in most regions of the country, this money would be enough for years of comfortable living without work. In the United States, however, the same income can force a person to live paycheck to paycheck. And it's not just those who earn half a million a year who feel financial pressure. Below the income threshold, the middle class is experiencing its own version of this, but without the $400 dinner to drown their sorrow in. In fact, if you were to calculate the poverty line in the US using the same formula that was in effect in the 1960s, a
family of four would need about $130,000 a year just to break even. We've already made a whole video about why this happened, and you can click on it on your screen right now. Thanks for watching, friend. Goodbye.
