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Affordable Housing , Community Development , Homelessness

When Measuring Family Budgets, More Tools Are Better Than One

16 September 2013

First posted by the Economic Policy Institute. Reposted by permission, Connecticut figures added by Doug Hall, EPI’s director of the Economic Analysis and Research Network (EARN).

Elise Gould is the Economic Policy Institute Director of Health Policy Research. Hilary Wething is the Economic Policy Institute Research Assistant.

NPR’s Planet Money had a good story about problems with the official measure of poverty, noting the general consensus among academics, researchers, and policy analysts alike that the federal poverty line has some fundamental flaws.

For one, the poverty line doesn’t take into account geographic differences—ignoring the widely varying regional prices for necessities like rent and child care.  For example, the annual family budget for a one parent family of three in the Hartford Metro area is $73,339 ($77,211 in the Bridgeport Metro area, and $75,683 in rural Connecticut).” 

Furthermore, the federal poverty line is calculated using a method that is obsolete given recent and historical trends in the U.S. economy. The current methodology was designed in 1963, and it basically set the poverty line at three times the cost of a basic food budget. Since then, the line has been only updated to account for overall inflation. Thus, for example, it doesn’t accurately reflect the increasing share of family budgets going towards housing and health care and the decreasing share going to food.

Besides these problems in calculating the right threshold for poverty, the current methodology does not account for resources that help raise living standards, such as food stamps and tax credits.

In response to these shortcomings, the Supplemental Poverty measure (SPM) was published in 2011 to better reflect the resources available to families and to provide a more accurate threshold of economic adequacy. The SPM calculates the financial resources it takes to live free of material deprivation by examining average expenditures on food, clothing, shelter, and utilities (and accounting for geographic differences in housing costs).

Additionally, the SPM reflects the resources available to households through government policies such as tax credits and in-kind public benefit programs that boost a family’s living standards and hence, their economic status. The SPM is an extraordinarily useful tool. We recently used it to assess the economic health of the elderly population and to estimate how a proposed increase in cost-sharing by Medicare beneficiaries or a change in the indexing of Social Security benefits would impact the well-being of the elderly population.

However, the SPM falls short on creating a metric of economic insecurity that accounts for detailed geographic variability in costs for items beyond housing and also fails to fully take into account some necessary components a family needs to make ends meet, such as child care. Enter the EPI Family Budget Calculator, which overcomes the shortcomings of both the federal poverty line and the SPM.

While it is not a measure of economic deprivation, the EPI family budget measures an adequate but modest standard of living for six family types living within 615 specific communities, offering a comparative advantage for the geographic dimension of components beyond the federal poverty line and SPM. Given that there is no single measure of living standards, or economic insecurity, the more tools available, the better. See how your community measures up today.

See more here

Elise Gould is the Economic Policy Institute Director of Health Policy Research.

Hilary Wething is the Economic Policy Institute Research Assistant.

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