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Are nearly a third of American households underwater financially?


The University of Virginia’s Weldon Cooper Center for Public Service this week released the results of a study on the economic security of families in Virginia. The report evaluates economic stability among residents of the state and concludes that traditional metrics for doing so are woefully inadequate. Namely, it reports that the poverty guidelines used in the United States are obsolete and inaccurate.

The study explains that the simplified poverty thresholds used by federal and local governments (for example, to evaluate welfare eligibility) are determined simply by tripling average food costs. While the Census Bureau uses a somewhat more complex calculus, with 2009 revisions meant to account for things like geographic variation and shifts in the costs of food (downward) and household goods (upwards), it doesn’t end up with terribly different numbers from the simplified thresholds, as is evidenced in the most recent Census figures (Microsoft Excel file) establishing poverty guidelines. For example, as of this year, the simplified poverty threshold puts the poverty line at $22,350 for a household with two parents and two children; the Census says it’s $22,162.

So if the Census Bureau uses a mind-bogglingly complex formula to determine what level of income makes a person or family poor, and the rest of the federal government just multiplies the average cost of food by three, and they both end up with about the same number, why isn’t that an accurate measure of poverty in the U.S.? The Cooper Center report explains:

“Many families the poverty line (household incomes 100-150% of FPL) rely on public assistance programs, indicating that we might better view the current poverty line as a measure of deprivation, not of the income necessary to be truly self-sufficient.”

That issue — economic self-sufficiency — is at the heart of the study, and its findings are startling. Although the report only evaluates Virginia households, its conclusions clearly have relevance throughout the country, given that, as the report states, Virginia has the 39th lowest poverty rate and the 42nd lowest unemployment rate in the country, and as statistics available elsewhere attest, Virginia is right in the middle of the country in terms of cost of living (24th lowest out of 50 states, plus D.C.).

The study breaks down average monthly household expenses in the state of Virginia and finds that to meet basic household expenses, the average household needs to earn approximately 200 percent of the federal poverty line. Put more simply, one needs to make at least twice what the federal government calls the poverty line in order to live in Virginia. And again, given Virginia’s relative economic health and perfectly average cost of living, the same is presumably true across the country.

Because the poverty line as determined by the federal government is a sliding scale based on household size, and census data on household income does not break things down by household size, it’s a bit difficult to wrangle statistics together meaningfully. But an extremely rough estimate based on the Census thresholds and the fact that the Census puts the median household size in the U.S. at 2.6 people would put the “median poverty line,” as it were, in the neighborhood of $16,500 — a bit north of the halfway point between the two- and three-person household poverty lines.

Based on the Cooper Center conclusion that people really need to be making about twice what the government says they need to be making just to get by, if you double that $16,500 to get an estimate of how much the average family really has to make just to break even, you end up with $33,000. Census data (PDF) indicate that an even 36 percent of households in the U.S. have an income of less than $35,000 a year. So to bring it all together, if the Cooper Center’s study can indeed be applied to the rest of the country, it’s possible that as many as a third of all American households aren’t pulling in enough income to break even without assistance — a far cry from the already-high 14.3 percent poverty rate officially published by the Census Bureau.

Although these are, again, very rough estimates, at least one figure cited in the Cooper Center’s report indicates that they may not be terribly far off: the Federal Reserve’s most recent Survey of Consumer Finances shows that a full 30% of Americans are what the Federal Reserve dubs “asset poor” — that is, they don’t have the savings to pay for retirement or children’s education funds, nor do they have enough money set aside to weather crises such as job loss or medical emergencies. These results are from 2007, before the U.S. economy went into freefall. The survey is conducted every three years, so the results from 2010’s survey may eventually paint an even grimmer picture once they are released.

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