Jeffrey C. Fuhrer
June 20, 2024The poverty level—and the corresponding poverty rate—is a woefully incomplete measure of economic need. A much more relevant benchmark is the cost of a basket of basic necessities.
Across all family structures, 59% and 66% of Black and Hispanic families, respectively, have resources that fall short of basic family budgets, versus 37% of white families.
Single-parent families are disproportionately Black and Hispanic—they account for 55% and 33% of families with children under age 18, respectively, compared to 24% of white families.
Volunteers place potatoes into small bags at a food distribution event for the needy sponsored by the Second Harvest Food Bank of Central Florida and Orange County at St. John Vianney Church in Orlando, Florida. High food and gas prices are squeezing working families, sending some to food pantries for the first time, but providers are struggling with inflation costs as demand spikes. Paul Hennessy /SOPA Images/Sipa USA
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How many families struggle to meet daily needs? It is common for popular media to report on the official poverty rate—the fraction of households whose resources fall below the official poverty line. In 2022, the official poverty rate was 11.5%.1 And yet the official poverty lines, which vary by family size and structure, are pitifully low. Note that poverty levels do not vary by location: The federal poverty level for New York City, NY is the same as that for Biloxi, MS. For example, a household with two adults and two children is considered below the poverty level if it earned less than $30,900 in 2023. It is hard to imagine a family of four with two children living anywhere in the U.S. for this amount.2
The premise of this blog is that the poverty level—and the corresponding poverty rate—is a woefully incomplete measure of economic need. A much more relevant benchmark is the cost of a basket of basic necessities. That benchmark, unlike the poverty threshold, varies dramatically by geography, as housing and other costs vary substantially from county to county.3 The cost of necessities far exceeds the poverty level for every family category in every county in the country.4
Family budgets
The Economic Policy Institute (EPI) has assembled family budgets that cover basic necessities for different family structures in every county in the U.S.5 These budgets comprise expenditures on food, housing, health care, childcare, transportation, taxes, and other necessities.6 The full definition of these categories may be found here. The family budgets are constructed to measure the income “…a family needs in order to attain a modest yet adequate standard of living.” For example, budgets for two-parent, two-child families range from below $60,000 in Orangeburg County, SC to well over $100,000 in San Francisco, CA.
FIGURE 1
Read more fromHow We Rise
Economic IndicatorsU.S. States and Territories
PROGRAM
Governance Studies
PROJECT
Race, Prosperity, and Inclusion Initiative
How many families struggle to meet daily needs? It is common for popular media to report on the official poverty rate—the fraction of households whose resources fall below the official poverty line. In 2022, the official poverty rate was 11.5%.1 And yet the official poverty lines, which vary by family size and structure, are pitifully low. Note that poverty levels do not vary by location: The federal poverty level for New York City, NY is the same as that for Biloxi, MS. For example, a household with two adults and two children is considered below the poverty level if it earned less than $30,900 in 2023. It is hard to imagine a family of four with two children living anywhere in the U.S. for this amount.2
The premise of this blog is that the poverty level—and the corresponding poverty rate—is a woefully incomplete measure of economic need. A much more relevant benchmark is the cost of a basket of basic necessities. That benchmark, unlike the poverty threshold, varies dramatically by geography, as housing and other costs vary substantially from county to county.3 The cost of necessities far exceeds the poverty level for every family category in every county in the country.4
Family budgets
The Economic Policy Institute (EPI) has assembled family budgets that cover basic necessities for different family structures in every county in the U.S.5 These budgets comprise expenditures on food, housing, health care, childcare, transportation, taxes, and other necessities.6 The full definition of these categories may be found here. The family budgets are constructed to measure the income “…a family needs in order to attain a modest yet adequate standard of living.” For example, budgets for two-parent, two-child families range from below $60,000 in Orangeburg County, SC to well over $100,000 in San Francisco, CA.
FIGURE 1
Figure 1
Figure 1 displays the full range of budgets for this family structure. As the figure suggests, most family budgets for two-adult, two-child families range between $60,000 and $90,000. Budgets decline significantly for families with fewer adults and/or children, (not shown) and rise significantly for families with more children (not shown).
Calculating the gap between family resources and family budgets
So how many families can afford basic necessities in the U.S.? The sad answer is that for a shockingly high proportion of families, total family resources do not cover the expenses for these necessities. And that proportion rises significantly for families of color.7
Many low-income families (fortunately!) receive some support from federal and state governments in the form of food, housing, utilities, and health care assistance, as well as a boost from the Earned Income Tax Credit.8 For this reason, in calculating the gaps between resources and budgets, I use a measure of family resources compiled for the Supplemental Poverty Measure (SPM) of the Census Bureau that includes families’ earned income, along with the value of most all government supports, including in-kind and cash benefits.9
Matching family resources by family structure and county of residence to the budget measures above yields gaps between resources and needs. Table 1 summarizes the results across the U.S. by race, ethnicity, gender, and family structure.10
TABLE 1
Forty-three percent of all families in the U.S. fall short of meeting basic needs. And the legacy of institutional racism jumps out of these statistics: Across all family structures, 59% and 66% of Black and Hispanic families, respectively, have resources that fall short of basic family budgets, versus 37% of white families.11
The numbers are worse for single-parent families and for families with more than two children. One-parent families are particularly stressed, with more than 75% of families with two or more children falling short. Two-parent families fare better, as Melissa Kearney has stressed.12 But even there, about 40% of two-parent, two-child families fall short, and more than half of two-parent families with three or more children fall short.13
Single-parent families are disproportionately Black and Hispanic—they account for 55% and 33% of families with children under age 18, respectively, compared to 24% of white families. As the last four rows of Table 1 show, these families are overwhelmingly struggling, with 80% to 90% falling short.14
Rather than the 11% to 12% of families who fall short according to the official poverty rate, more than two in five families are struggling, with the numbers much more distressing for families of color. In this sense, the true “poverty” rate is much higher than is typically reported. These are staggering numbers for an economy as affluent as the United States.15
How do families cope?
If families don’t have enough to pay for necessities, how do they cope?
As the interviewees in my recent book, (“The Myth That Made Us,” MIT Press 2023) attest, they use a variety of tactics to cope with life on or near the edge. To be sure, they scrimp on some necessities. Families can avoid spending on preventative health care, home maintenance (for the minority who own homes), auto maintenance and other necessary expenditures that can be deferred. They go into debt. And they juggle bills. Several of my interviewees reported making the hard decision about which bills to pay month by month—rent or heat? Food or medical?
Of course, all of these decisions bear important longer-term consequences. As a leading example, non-payment of rent often leads to eviction and the endless trauma that accompanies it, as documented in Matthew Desmond’s seminal work on the subject (“Evicted,” 2016). Equally chilling are the resulting disparities in health outcomes by race and ethnicity.16 And the generational effects of these persistent deficits explain part of the huge wealth gaps that have been the focus of numerous studies and reports.17
Robustness
The Economic Policy Institute budget data reflects a reasonable estimate of the basic cost of living, as the sources for each key component typically err on the low side of expenditure estimates. Still, recognizing the difficulties in arriving at a cost of living that all will agree upon, I present below results using budgets that are significantly trimmed relative to those published by the EPI. Specifically, I consider two sets of adjustments.
In the first set, I lower the rents in each budget to an estimate of the 20th percentile of rents by county, as compared to the 40th percentile embodied in the HUD fair-market rents used by the EPI measure. In addition, I alter USDA food budgets from the “low-cost” to the “thrifty” budget (the lowest budget category).18 These cuts reduce the fraction of families in need by six percent to 10%, as shown in Table 2 below.
In the second set, I somewhat arbitrarily slash other categories of spending as follows:Health care spending is reduced by one-third, to reflect economizing on out-of-pocket expenses.19
Child care spending is reduced by one-third, reflecting the use of non-market and potentially lower-quality providers of child care by many lower-income families.20
Transportation is reduced by one-half, reflecting the possibility of stretching automobile lifetimes, economizing on maintenance and needed repairs, or walking instead of using public transit where that is feasible.
The “other necessities” category, which includes apparel, household supplies, and furnishings, is arbitrarily reduced by one-half.
Altogether, these cuts reduce family budgets on average by about 30%—most budgets now fall in the $40,000 to $60,000 range. These budgets should be considered extremely conservative estimates of the true cost of living in these counties.
Despite these sizable reductions in budgets, the percentages of families that fall below sustainable budget levels remain alarmingly high. As table 2 indicates, under both alternative budget assumptions, about one-third of all families still fall below sustainable budgets—more than double the poverty rate—and between 44% and 57% of Black and Hispanic families still fall short. Single-parent Black and Hispanic families continue to fare incredibly poorly.
TABLE 2
These facts are sobering. For an economy as affluent as ours is in the aggregate, the share of families who are not making it is unacceptably high.
Conclusion
In the aggregate, we remain the most affluent and wealthy country in the world. But the shortfall of millions of U.S. families’ total resources relative to the cost of basic necessities is an embarrassment. The huge numbers of families with low incomes, measured not relative to the poverty line but to quite conservative budgets, is staggering.
Key narratives in wide circulation would suggest that the families are to blame. They don’t work hard enough. They have made bad decisions (see again “The Myth”).
Tens of millions of families can’t make it because they’re lazy? That claim is absurd on its face. We have consciously chosen to structure our economy so that it provides extremely well for the already affluent, wealthy, and (mostly) white. We have become a country that hesitates at every turn to distribute resources according to need, pointing instead to the virtues of self-reliance.
What to do to address these distressing shortfalls? First, I would suggest that we more routinely use budget shortfalls, rather than poverty rates, as our leading indicator of economic need. The measure I have developed is a first pass and could no doubt be refined. But in my view, it provides a much more accurate picture of the number of families struggling in the U.S.
Second, the size of the gaps suggests that modest policy measures are unlikely to be effective. Millions of households are tens of thousands of dollars shy of affording basic necessities. A tweak to the EITC would be helpful, but moving the average benefit from $3,100 to $3,700 will not make the difference.21 Instead, targeted income supports that pay $1,000 per month or more will more likely put families on a solid economic footing.22
Some would say we can’t afford to do anything different. And yet private corporations earned over $2.6 trillion in profits in 2022. Of that, more than $1.1 trillion was used to repurchase shares, so as to artificially boost their stock prices.23 While some economists will argue, I believe that is a totally non-productive use of income generated by the economy. In addition, the IRS reports that in the 2021 tax year, about $688 billion in taxes remained non-filed, underpaid, or underreported.24
So we can afford it, without doing serious damage to the rest of the economy. To date, we have chosen not to. As the election season gears up, we need to make this a top priority.
Calculating the gap between family resources and family budgets
So how many families can afford basic necessities in the U.S.? The sad answer is that for a shockingly high proportion of families, total family resources do not cover the expenses for these necessities. And that proportion rises significantly for families of color.7
Many low-income families (fortunately!) receive some support from federal and state governments in the form of food, housing, utilities, and health care assistance, as well as a boost from the Earned Income Tax Credit.8 For this reason, in calculating the gaps between resources and budgets, I use a measure of family resources compiled for the Supplemental Poverty Measure (SPM) of the Census Bureau that includes families’ earned income, along with the value of most all government supports, including in-kind and cash benefits.9
Matching family resources by family structure and county of residence to the budget measures above yields gaps between resources and needs. Table 1 summarizes the results across the U.S. by race, ethnicity, gender, and family structure.10
TABLE 1
Forty-three percent of all families in the U.S. fall short of meeting basic needs. And the legacy of institutional racism jumps out of these statistics: Across all family structures, 59% and 66% of Black and Hispanic families, respectively, have resources that fall short of basic family budgets, versus 37% of white families.11
The numbers are worse for single-parent families and for families with more than two children. One-parent families are particularly stressed, with more than 75% of families with two or more children falling short. Two-parent families fare better, as Melissa Kearney has stressed.12 But even there, about 40% of two-parent, two-child families fall short, and more than half of two-parent families with three or more children fall short.13
Single-parent families are disproportionately Black and Hispanic—they account for 55% and 33% of families with children under age 18, respectively, compared to 24% of white families. As the last four rows of Table 1 show, these families are overwhelmingly struggling, with 80% to 90% falling short.14
Rather than the 11% to 12% of families who fall short according to the official poverty rate, more than two in five families are struggling, with the numbers much more distressing for families of color. In this sense, the true “poverty” rate is much higher than is typically reported. These are staggering numbers for an economy as affluent as the United States.15
How do families cope?
If families don’t have enough to pay for necessities, how do they cope?
As the interviewees in my recent book, (“The Myth That Made Us,” MIT Press 2023) attest, they use a variety of tactics to cope with life on or near the edge. To be sure, they scrimp on some necessities. Families can avoid spending on preventative health care, home maintenance (for the minority who own homes), auto maintenance and other necessary expenditures that can be deferred. They go into debt. And they juggle bills. Several of my interviewees reported making the hard decision about which bills to pay month by month—rent or heat? Food or medical?
Of course, all of these decisions bear important longer-term consequences. As a leading example, non-payment of rent often leads to eviction and the endless trauma that accompanies it, as documented in Matthew Desmond’s seminal work on the subject (“Evicted,” 2016). Equally chilling are the resulting disparities in health outcomes by race and ethnicity.16 And the generational effects of these persistent deficits explain part of the huge wealth gaps that have been the focus of numerous studies and reports.17
Robustness
The Economic Policy Institute budget data reflects a reasonable estimate of the basic cost of living, as the sources for each key component typically err on the low side of expenditure estimates. Still, recognizing the difficulties in arriving at a cost of living that all will agree upon, I present below results using budgets that are significantly trimmed relative to those published by the EPI. Specifically, I consider two sets of adjustments.
In the first set, I lower the rents in each budget to an estimate of the 20th percentile of rents by county, as compared to the 40th percentile embodied in the HUD fair-market rents used by the EPI measure. In addition, I alter USDA food budgets from the “low-cost” to the “thrifty” budget (the lowest budget category).18 These cuts reduce the fraction of families in need by six percent to 10%, as shown in Table 2 below.
In the second set, I somewhat arbitrarily slash other categories of spending as follows:Health care spending is reduced by one-third, to reflect economizing on out-of-pocket expenses.19
Child care spending is reduced by one-third, reflecting the use of non-market and potentially lower-quality providers of child care by many lower-income families.20
Transportation is reduced by one-half, reflecting the possibility of stretching automobile lifetimes, economizing on maintenance and needed repairs, or walking instead of using public transit where that is feasible.
The “other necessities” category, which includes apparel, household supplies, and furnishings, is arbitrarily reduced by one-half.
Altogether, these cuts reduce family budgets on average by about 30%—most budgets now fall in the $40,000 to $60,000 range. These budgets should be considered extremely conservative estimates of the true cost of living in these counties.
Despite these sizable reductions in budgets, the percentages of families that fall below sustainable budget levels remain alarmingly high. As table 2 indicates, under both alternative budget assumptions, about one-third of all families still fall below sustainable budgets—more than double the poverty rate—and between 44% and 57% of Black and Hispanic families still fall short. Single-parent Black and Hispanic families continue to fare incredibly poorly.
TABLE 2
These facts are sobering. For an economy as affluent as ours is in the aggregate, the share of families who are not making it is unacceptably high.
Conclusion
In the aggregate, we remain the most affluent and wealthy country in the world. But the shortfall of millions of U.S. families’ total resources relative to the cost of basic necessities is an embarrassment. The huge numbers of families with low incomes, measured not relative to the poverty line but to quite conservative budgets, is staggering.
Key narratives in wide circulation would suggest that the families are to blame. They don’t work hard enough. They have made bad decisions (see again “The Myth”).
Tens of millions of families can’t make it because they’re lazy? That claim is absurd on its face. We have consciously chosen to structure our economy so that it provides extremely well for the already affluent, wealthy, and (mostly) white. We have become a country that hesitates at every turn to distribute resources according to need, pointing instead to the virtues of self-reliance.
What to do to address these distressing shortfalls? First, I would suggest that we more routinely use budget shortfalls, rather than poverty rates, as our leading indicator of economic need. The measure I have developed is a first pass and could no doubt be refined. But in my view, it provides a much more accurate picture of the number of families struggling in the U.S.
Second, the size of the gaps suggests that modest policy measures are unlikely to be effective. Millions of households are tens of thousands of dollars shy of affording basic necessities. A tweak to the EITC would be helpful, but moving the average benefit from $3,100 to $3,700 will not make the difference.21 Instead, targeted income supports that pay $1,000 per month or more will more likely put families on a solid economic footing.22
Some would say we can’t afford to do anything different. And yet private corporations earned over $2.6 trillion in profits in 2022. Of that, more than $1.1 trillion was used to repurchase shares, so as to artificially boost their stock prices.23 While some economists will argue, I believe that is a totally non-productive use of income generated by the economy. In addition, the IRS reports that in the 2021 tax year, about $688 billion in taxes remained non-filed, underpaid, or underreported.24
So we can afford it, without doing serious damage to the rest of the economy. To date, we have chosen not to. As the election season gears up, we need to make this a top priority.
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