25M Middle Class Americans Live Hand-to-Mouth

If asked to describe the typical American who lives paycheck-to-paycheck, you might conjure up the image of a minimum-wage worker struggling to make rent each month.

But a new study out of the Brookings Institution finds that two-thirds of U.S. households living "hand-to-mouth" are actually middle class, with homes and retirement assets. Only about one-third of those just getting by financially are what most would consider poor, with median incomes of about $20,000.

Overall, about 38 million American families live hand-to-mouth, or about one-third of all U.S. households.

So why do families with decent incomes and assets have to live "hand-to-mouth," spending all their cash with each paycheck? The reason may be that such middle-class consumers are opting to put money into illiquid investments with better rates of return than a savings account, such as real estate or a retirement portfolio, Greg Kaplan, assistant professor of economics at Princeton University, told CBS MoneyWatch.

"This behavior might look on the face to be kind of crazy, but in some of our other work we show it looks like a very sensible thing to do, given the incentives to invest in retirement accounts and real estate," he said.

Those incentives include tax-deferred contributions to retirement accounts and the home mortgage interest deduction.

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