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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.

By Karen Datko Oct 11, 2012 8:22PM

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."

 

The Huffington Post adds:

"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."

Image: Past Due Notice on Envelope © Stockbyte/Getty ImagesI 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

428Comments
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we as a country are only as strong as its weakest people. If were a nation of low income people we will have all that is associated with that. Government needs to stop wasting money. Protect our shores and take care of the infrastructure, education,healthcare and its people. Stop nation building, stop trying to control what people do in their private lives and stop funding dictators and regimes just for starters. RON PAUL 2012
Oct 12, 2012 11:06AM
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i wonder when the last time romney, or his snake in the grass partner ryan, hung out or around some of these 20%ers to see what life is like when you dont have millions in your account, i mean accounts.
Oct 12, 2012 11:05AM
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why don't you guy's look at working for cash, ?and a lot of money comes from illigal means, while drawing goverment handouts ! it will scare you if you do the right reporting and dig into this ? the working class is tired of going to work every day and watching people laying around doing nothing, and drawing our tax dollars ! get a clue !
Oct 12, 2012 11:05AM
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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.....

Oct 12, 2012 11:05AM
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These folks spend more than they take in because they CANNOT SURVIVE on what they 'take in'!! I think a big part of what's missing here is "who ARE these people??" I can tell you that I crawled out of poverty with small children by working and going to college. I got my degree, worked as an RN. I had a decent income, bought a home.. things were going OK. I didn't have credit card debt at all. Then, I got sick. I haven't been able to work for over 2 years. The fight for social security is endless due to my age. I have NO health insurance (I need to 'prove' my medical status, though, for SS) because my long term disability income is "too high". Over HALF of what I get from long term goes to my house payment. I don't have a nice or large home. I have a 1970's house in dire need of repair. I don't qualify for food stamps, so our diet is suffering. I can't afford all my medications. I can't see a doctor when I need to. I've cut back on already meager spending, but I have teens at home that can't mentally handle anymore 'cut backs' and need internet access for school. My vehicle only runs half the time, and I can't afford driver's ed to get my teen a license. He can't work, because then he'd lose HIS medicaid (and my daughter would lose hers) as they count children's income as the adults!! So my son is left with no options to get a license (like all of his friends) he can't earn his own spending money (besides mowing some lawns in the summer), and can't help the house hold situation. Going from poor to OK to poor again is "the American way". I will soon be losing my house to foreclosure, because I have to choose between my medications and my house payment. What will happen to my family then? I don't really know. My credit is ruined, so renting an apartment will be hard. There are those of us that are "stuck". We don't make enough to survive, but too much for any help. SS/disability is a JOKE. I've been fighting for over 2 years, and have about another year to go before I can get in front of a judge. Thankfully, I didn't sell the 1980's camper I bought. It won't be a happy place to live, but it's a roof. 
Before people who aren't in this position judge others, I suggest you find out just "who" it is that you're judging, and why those people are in this position. Try to imagine what life is like for these people. The stress in my house is beyond "high". My children's stress level is extremely high. I kept my life insurance so that my children would have a fighting chance if I can't turn this around. It's always in the back of my mind. Oh, and I found out years ago (by actually speaking with a lot of poor adults at a junior college where people were trying to end their cycle of poverty) that not everyone can succeed at college. Even if they try. Some due to poor high school education, some due to IQ. So "get a college degree" just doesn't work as an answer. Not just because of what happened with me, but for those who simply can't manage to get a college education. The answer must be something else for those people. Government aid has GOT to be adjusted to keep up with inflation!! Too many people are falling through the cracks... including my family, who did NOTHING to cause their own situation! Sometimes things just happen. The mental and emotional toll it takes on the family is HUGE. Then, with no access to healthcare, you have another issue.... depression and anger and other mental health issues stemming from what's happened without access to the help needed to deal with those stresses. Even worse when you have a good number of people looking down their nose at you without having a clue. It's easy to scoff at those you don't know. Tell them to 'give up' something else when they already feel that they have no value and the only real answer is their death. 
Oct 12, 2012 11:01AM
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take public transportation, live in a slum, don't ever go see a doctor, don't buy anything but necessities and make things last and stretch and you can do it. 
Oct 12, 2012 10:56AM
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I have empathy and sympathy for the poor.   It is my belief that a society can be judged based on how it treats its poor.  

Oct 12, 2012 10:55AM
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In my community, gas stations are just designed to take folks' money.  They usually have gambling opportunities such as Lotto, or even machines.  They have all kinds of expensive, low nutritional foods, and of course plenty of cigs and beer.  Working in the non profit industry and seeing low income folks' bank statements, it's pretty clear to me where this money goes.  Not sure where the excess money comes from.  Social Services I presume...
Oct 12, 2012 10:54AM
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I know people living below poverty level, they don't spend any extra money bc they don't have it, literally... but they need it bc of 2 girls in school, and another on it's way. They BOTH work, have full time jobs, but their pay is a joke... I can't believe they can get away with paying people that low... How do these people expect to live??
Oct 12, 2012 10:51AM
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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.

Oct 12, 2012 10:51AM
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How come they always can spend 2 times what they show they make?
Oct 12, 2012 10:43AM
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A huge number of these "household units" are students sharing an apartment, house, etc.   Their poverty is temporary.  Another chunk of them are hiding income from the IRS by working for cash, etc.   A majority are poor because they want to be, not because they are forced to be.  There's a big difference. 
Oct 12, 2012 10:41AM
Oct 12, 2012 10:39AM
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The minimum wage should be $15 a hr across the nation so you would be able to live decently.
Oct 12, 2012 10:38AM
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and some of these people live in an underground cash economy including the illegals and their true income can't be traced.

 

Also-

 

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.

Oct 12, 2012 10:37AM
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Not only are these people dependent on the government for their income, they have learned from the government how to spend their money. Funny how I do not have the ability to spend twice as much money as I earn. As a taxpayer, at least  50% is taken in some form of tax, so "poor" people can spend twice as much of my money that the government gives them. I only get to spend half what I earn, because the government says so, and they say I'm not paying my "fair share". 
Oct 12, 2012 10:36AM
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Earned Income Credit - your tax dollars hard at work going into someone else's pocket who probably didn't pay any themselves....
Oct 12, 2012 9:19AM
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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.

Oct 12, 2012 8:53AM
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We have a standard of living in this country that we can no longer afford. How do you get to your $8.00 an hour job, when gas is $4.00 a gallon.
Oct 12, 2012 8:43AM
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This is how a majority of formerly middle class Amerikans will be forced live live in the "new" economy. There is another term for it- its called slavery. Povery holds you tighter into slavery than chains ever have. We have our masters in Washington and Wall St. to thank for this collape in society thats ushering in a new dark age.
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