Hand-to-mouth wealth

Most disciplines have their own jargon and terms, and economics is no exception. One such economic term is hand-to-mouth wealth. NC State University economist Mike Walden explains what it is and why it’s important.

“This is a term that some economists coined, and what hand-to-mouth wealth refers to specifically is, number one, households who live paycheck to paycheck – so they always have to be budgeting; they always have to be worried about running out of money at the end of the month – but they actually have substantial wealth in the background. The problem is they can’t easily get at that wealth.

“Research shows about 30 percent — 30 percent — of all households live paycheck to paycheck. But if you look at those 30 percent, two-thirds of them have significant wealth. They just can’t turn it easily into money. The best example, of course, is having a home.

“A home, of course, is wealth. We measure wealth by the value of the home minus what you owe in terms of the mortgage. The problem is that it’s not easy to turn that equity, if you will, into money on a month-to-month basis, so this is a perfect example of someone with hand-to-mouth wealth.

“Now, also the research shows that if those households who do live paycheck to paycheck, but they do have substantial wealth, receive some sort of financial assistance, through maybe some government program, they actually spend a high amount of that — in fact, moreso than any other sort of household classification.

“So in terms of stimulating spending in the economy, helping households who are in a hand-to-mouth wealth situation is very, very positive.”