Poorest in US spend twice their income
A new government study says people in the bottom 20% of earners are taking in about $10,000 a year on average but have $22,000 in expenditures.
The poorest U.S. households -- the bottom 20% -- take in just under $10,000 a year, including wages, Social Security, unemployment benefits and welfare -- yet spend more than twice that much.
That astounding information, from a new U.S. Bureau of Labor Statistics report called the 2011 Consumer Expenditure Survey, was overlooked by much of the media. It raises some serious questions:
- Where is that extra money coming from?
- Is it possible to survive on $10,000 a year?
First, let's take a look at some of the details from the report:
- The 20% included 24.4 million "consumer units" or households.
- Their average income before taxes was $9,805 and was $10,074 after taxes. The bump is likely due to tax credits that help the poor.
- These consumer units consisted on average of 1.7 people.
- 63% of these households were headed by women.
- 61% were renters. For those who own a home, the average market value was just under $60,000.
- The average age was 51. While some of the people in the lowest 20% were retirees, most were not.
- Only 65% had a vehicle.
Average annual expenditures amounted to $22,001 (compared with a national average of nearly $50,000), which included, among other things:
- $8,771 for housing, nearly 40% of total annual expenses.
- $2,448 for food at home.
- $1,099 for food away from home.
- $2,284 for utilities, including $681 for phone service.
- $3,256 for transportation.
- $1,489 for health care.
- $981 for entertainment, including $522 for "audio and visual equipment and services."
- $316 for tobacco products, compared with a national average of $351.
- $170 for alcoholic beverages, way below the national average of $456 and the $994 spent by the top 20%.
Where is the extra money to cover expenses coming from? The BLS offers some explanation:
"Consumer units whose members experience a spell of unemployment may draw on their savings to maintain their expenditures. Self-employed consumers may experience business losses that result in low or even negative incomes, but are able to maintain their expenditures by borrowing or relying on savings. Students may get by on loans while they are in school, and retirees may rely on savings and investments."
Some are likely borrowing from family members and friends. One commenter at Firedoglake said:
"The shortfall between what the desperate need to live and what they actually have is filled by their nearest and dearest -- never to be repaid of course. So when they fill up the cost-of-living gap, this pushes the slightly better-off relatives down toward the same fix of check-to-check desperation."
The website The Economic Populist offers another clue: "The only other explanation we have for how people can pay to live when they have only 45.8% of the money actually needed is they either have additional sources of unreported income, or they are in debt."
"Many are also taking on debt. In 2010, roughly one-quarter of the poorest fifth of households held a high debt burden, or had debt service payments exceeding 40% of their income, according to the Economic Policy Institute."
I suspect that unreported income -- income the government doesn't know about -- is a significant factor. Think of people you know who are paid cash for looking out for other people's kids or doing handyman jobs, or who sell odds and ends at a flea market.
Now, is it possible to live on $10,000 a year? Could people in the bottom 20% cut back on their spending and live within their (reported) means?
It's easy to say they should ditch the cellphone plan or the cable TV. But that's not much help if your housing costs are $8,771. That leaves only $1,303 for everything else, or just over $108 a month.
Still, some do manage. Do an Internet search for "can you live on $10,000 a year?" and you'll find many examples. You'll also find that many of these extremely frugal folks have special housing arrangements, like living in an RV or taking care of someone else's property, or live where rent is very low. Some examples:
- Jacob Lund Fisker of the famous Early Retirement Extreme blog explains how he lived on $7,000 a year in early retirement before he chose to return to work.
- A blogger named Kaiyan717 describes how she and her son live on $10,000 a year while she goes to school full time (mostly online). The recipe includes low rent, a paid-for car, no eating out and a monthly Netflix streaming account for entertainment.
At one point, I managed to live on about that much because I eliminated all but necessary expenses. However, my monthly bills didn't include health insurance, which would have cost more than my mortgage (about $310 at the time).
MSN Money columnist Liz Weston offers some good advice for people in the lowest 20%, including:
- Save $500. "Having $500 set aside can help you cover minor emergencies and avoid payday lenders and bounced-transaction fees," she writes.
- Make sure you file taxes and claim the earned income tax credit and others you may be eligible for.
- Avoid businesses that prey on the poor, like payday lenders and rent-to-own.
These tips seem aimed at keeping low-income people from falling further behind. But how do you get ahead, especially if this is more than a temporary setback? How likely is it that you will escape poverty if that's where you started out in life? I've seen people do it, mostly via a good education.
But it's extremely difficult, suggests a recent Pew Charitable Trusts study (.pdf file), which notes:
"Forty-three percent of Americans raised in the bottom quintile remain stuck in the bottom as adults, and 70% remain below the middle. . . . Only 4% of those raised in the bottom quintile make it all the way to the top as adults, confirming that the 'rags-to-riches' story is more often found in Hollywood than in reality."
More from MSN Money
Really the author is unable to figure this out? My son's ex-girl friend is a perfect example of this. She refused to get a full time job, becasue then her government handout would cease. She received a rental assistance for her apartment (her portion of the rent was $75 a month), she received food stamps, she received medicad so every time she or her daughter had a little sniffle off to the emergency room they went. She received utiltiy assistance to pay her utility bills, etc. She was on every program she could find and qualify for. The incentive for her to get and education and/or full time jobs was nill and she would tell you that.
She would only work enough hours to pay for her cell phone, put gas in her car, and buy new clothes.
One of the happiest days of my life was when she became the ex-girl friend. Her mooching attitude is what drove my sone away.
The woman living two houses down from me is among these people making less than $10,000 per year, and you know what? I work a full-time job and make $45,000 per year, and she has far more disposable income than I do.
I take walks around the neighborhood in the evenings with my children when I can, and I've gotten to know her pretty well. She's chatty and likes to stop me while I'm out walking. Here's what I've learned.
In the four years I've lived in my home (which I bought in 2008), she's never had a job. She has no desire to get a job, either. She says that working will "blow her ride." Her words, not mine.
She has Section 8 housing and pays $45 month rent on her 3-bedroom house. My mortgage is $875 per month.
She gets $560 per month in food stamps.
She and her two children are on Medicaid. No copays for her kids, no premiums to pay, nothing. The government pays for it all.
I pay $550 per month in health insurance premiums for my two children and me. Then there are deductibles and copays.
She frequents every food bank and church in our city that hands out food. She has their schedules written down on a note pad that she keeps in her car.
One of her children is classified as "disabled" because he has ADHD and some sort of learning disability. She gets an extra check because of that.
(He lives with a friend of hers and they split the money, but shhh! Her caseworker knows about it and told her just to keep it quiet. Again, HER words.)
She is on some sort of home heating/utility assistance program that helps pay part (and sometimes all) of her electrical bill every month.
She qualified for disability herself about a year ago because she is extremely obese. Literally, she managed to convince somebody that she's too fat to work and needs to government to keep her up.
To make money, she babysits children in her home and never reports it to the IRS. She also sells things at flea markets. I'm sure that's never reported, either.
At the end of every month, she has far more cash at her disposal than I do. Her latest problem? She has so many grocery items that she's running out of space to store it all. She just put in another set of shelves in her garage (garage! Wish I had one!) to accommodate the overflow.
She has to spend all of that EBT money every month or they'll decrease her allowance, so when she doesn't spend it all, she sells it to people, 50 cents on the dollar, and keeps the cash to spend.
She has cable and a big flat-screen TV. I haven't had cable in more than a decade and still have an ancient TV with rabbit ears.
I'm not trying to have a pity party for myself. I do fine. I make enough to live on and support my children, which is good because I get no child support because my ex works for cash and reports no income either, but I did want to give you a perspective from those of us who have jobs and are slowly growing disgusted with the racket that's going on right here in America among some of these "poor" people.
I realize not all poor people do what the lady up the street does, but you're deluding yourself if you don't think this is becoming a MAJOR problem in our country. Open your eyes. It's going to destroy us if we don't do something to stop it.
and some of these people live in an underground cash economy including the illegals and their true income can't be traced.
I see people using food stamps and other "free" services who somehow -
1. have tattoos and piercing all over their bodies
2. have a cell phone - some even I-Phones
3. drive cars with $5,000 worth of tires and fancy wheels- on a $1,000 car, or drive a car they can't afford but feel they are entitled to
4. eat out all the time
5. have cable and internet with large flat screen TV
6. play the lottery
These people think these are needs and not wants. The basic needs are shelter, food, clothing and basic transportation to get to work and back.
Life for the most part comes down to chooses - good and bad - and you have to make good chooses and or learn from your mistakes. No one owes anyone a certain lifestyle - but everyone should have the same opportunities to succeed. It is up to each individual as to whether they succeed or fail.
Do everything in your power to get out of debt. Everything! Debt makes you a slave. You will still have a few expenses that have to be paid, but they are minimal. It is a tough place to get to, but you will no longer be a slave.
Debt has made people slaves just as bad as being owned. If you need to file bankruptcy to get out do it. Just do not get back in. Debt destroys.
I was out of work for 3 years, after 36 years in the banking industry. I never made a 6 figure income, but I always lived below my means. I have never carried credit card debt, and I am still driving a 92 Honda Accord I purchased used in 98. This car has 287,000 miles, but it runs good and looks OK. If I had not lived the way I did all my life, I would not have made it through this 3 year struggle. Even with a college degree I could not get an interview because of my age. I finally had a person call me and ask me if I would be willing to work part-time; not in banking but related field. On July 3, 2012, I went to work as a contract worker working 20 hours a week. I have to pay both the employee and employer parts of social security and medicare, currently 13.30%, but going back to 15.30% on Jan. 1, 2013. I know I am lucky to have found what I have and I am appreciative of what I have.
While I was out of work, I did not miss one house payment. I took my unemployment and I am not ashamed of doing it. In my state the max is $275 a week. My savings are low, but I survived. My good chooses helped me along with my wife and church. Having people around you who encourage and support you helps in difficult times.
This article mentions the poorest. How about adding the lower section of what is considered the middle class. All of those who make too much money to be eligible for food stamps and other government programs but yet are STRUGGLING to make it. This article and others like it relates to more than just the poor. I wish the media would get that! Why is the focus on just the poorest of the poor? Why isn't it on everyone who is suffering? I can say that because my mother (who worked all her life) is on section 8, food stamps and social security. This has been a hard transition for her and us as well because we were taught to do your part, live within your means and NOT TO BE A BURDEN on others. We couldn't afford to help her when she lost her job and then got really sick that led to her disability. Out of the four of us children we have just been trying to survive and keep food on the table for our families. Our mom had no choice but to go on government help and thank goodness for it. It was set in place to help people like her. I had always heard of people who abused the system but it wasn't until I saw it with my own eyes did I truly understand. I agree with Monte50. You go into these government agencies to meet with "your representative" and a lot of the people that are in the waiting area with you have better clothing, shoes, phones, purses, etc. then you could imagine. I have seen Louis Vuitton, Iphones, Tory Burch, etc. My first thought was why in the world are these people in here if they have such luxuries? I can't even afford some of this stuff. Then I overheard a conversation that made my blood boil. It was from a lady that was probably in her 50's and she was telling a younger mother to lie on her sheet. She also told her to have at least 5 kids. WHAT?????!!!!!!????? I was appalled! When the representative called my mother in to meet with her my sister and I decided to go in as well. She treated my mother with such disrespect and actually threatened my mother claiming that she was lying on her form and they would revoke her request for social security. My mother broke into tears and the representative asked us to go back to the waiting room to regroup and fill out some extra paper work. It was then that I got more of a shock. The representative called in the 50 year old women, who had told the young mother to lie on her forms; she was carrying a Louis Vuitton purse and had on some very expensive shoes. The representative complimented her on her purse, gave her a hug, chatted it up for a little bit and said I'll see you in church this Sunday while the lady left the building. THEY WERE FRIENDS!!!!! I was shocked! This 50 year old was flat out lying, the representative knew that she was lying and the representative was going to deny my mother’s social security......OMG!!!!!
When we went back into her office my blood was boiling but we couldn't say anything because we needed her help. We finally got a representative who was willing to help my mom and we got her social security but the ordeal that we went through to get it was awful. This is our government! It gives to the poor who choose not to work. I am sympathic if you are poor and work but if you choose NOT TO WORK I have a major issue about that. I am also sympathic to those who cannot work (mentally ill, disabled, etc.). But to be perfectly healthy carrying expensive materialistic things and not doing your fair share to help out is PATHETIC!!!! And, it's pathetic that our government allows it to happen. They have always been very quick to try to deny my mother’s claims and many others that we have seen in the social security office that have worked all their lives. I am sure with the lack of comments on this article that this issue and this article will get swept under the rug. It seems people don't want to realize the truth. THAT'S THE REAL SAD TRUTH ABOUT THIS NATION.
What, me worry??
there is alot of unreported income floating around out there, and it does gripe me that these same people enjoy the use of our tax dollars at work (roads, sidewalks, police protection) yet do not contribute at all or their fair share, as they have income "under the table", yet utilize unemployment or social services
. As for my a relative of somoone I know, she got a rent free two bedroom apartment from the government for herself and her three kids, rented out the two bedrooms to make that extra money while she and her kids slept on the couch and living room floor. How creative. When I reported this I was informed that this apparently was a common occurence in this welfare apartment complex. I also noticed nothing was ever done about it.....
This guy keeps saying intact families stay out of poverty. Well then tell all these guys to stop cheating & leaving woman alone to raise children in shattered homes becasue they decided they no longer want to be family men. A lot of us in those no longer intact families didn't chose to be single parents. So this guy should stuff it!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Buy a new refrigerator, and you could see your utility bills drop because of new energy-efficiency standards.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'