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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
Oct 12, 2012 1:51PM
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And of course, we always just jump to the fact that people ARE poor today...never find out how they came to be poor.

Why does Keiyan have a kid by herself?  Who's the dad?  Did she bother getting married first so that the kid would have a good shot at having 2 parents around, and more likely to be taken care of?  Did she just have the kid young, before she had any decent job, and before marriage?

Have any of these people committed crimes?  Done drugs?  Did they pay attention in school?  Did they drop out of school?  Are they hard working?  Have they been fired from jobs?  Why?  Do employers consider them good workers, when they have had good jobs?

Oct 12, 2012 1:50PM
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....you know where the extra $$S is coming from; cash under the table  / unreported income.
It is not just illegal aliens who are being paid below market wages.
Oct 12, 2012 1:50PM
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Yet another reason Dumbya bush was a crook for not giving the american people the money, but giving it to the crooked banks.  Americans would have spent it immediately, and set the economy on fire, but the banksters sat on our money and got richer, while millions lost their homes, and some their lives.  Tragic.
Oct 12, 2012 1:50PM
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"Necessities" are so variable. For example, I am a doctor and I still shop at DI, Goodwill, and yard sales. I don't buy super nice (t-shirts over $10 ever and a car more than $12k) I make 240K per year and I have student loans but I know where my money is going. Is a cell phone a luxery? Is cable television, internet at home? Yes, in fact, they all are. We as Americans pay for a standard of living we cannot afford. We are introduced to be best electronics and gadgets in the world and think that we cannot live without them. I survived most of my life without a cell phone. I didn't get one until I was like 25. I did just fine without one before. If you have a family of 5 and 3 or 4 have cell phones that becomes a large bill. A home phone is like $10 per month. Cell phones at best are $30/mo. Flat screen tvs, eating at resturants, and XBox systems are luxuries!

Ps. Romneys plan from an economical stand point will absolutely stimulate the middle class and smaller businesses to produce better, stronger jobs (fyi). I was all about Obama last election and thought this is great, we are progressive and changing things. Nope. We need a genius to run our countries business for the next 4 years and being a Harvard Valerdictorian

Oct 12, 2012 1:50PM
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I agree with American Val.   People are making more cash money and not reporting it.  Since I am a tax accountant I know that people make more money than they report to the US gov.   The IRs calls this the underground economy.    People on unemployment pay and then working off the books for cash doubling their unemployment pay.    Accountants World mentioned America's rich off-shoring over 1 trillion dollars of US dollars in Aruba, Cayman, St. Croix, etc.   So, if the US rich had hide their money the poor have the same right.    Bottom line,  people are voting with their dollars.   They are not about to give their money to any president of any party.      

Oct 12, 2012 1:43PM
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The question that comes to my mind is why people on both sides of this issue talk about poverty like it’s something that can be remedied.  Whether the poor are taking advantage of the system or not, the fact is there will always be various levels of income in a capitalist society.  There will always be rich and there will always be poor (and if we can stop the plutocrats from stealing our money, there will always be a middle class) .  That’s how the system works.  I’m not saying it’s good or bad, that’s just how it is.  And all of these “experts,” both conservative and liberal, who talk about ways to “fix” the system are just blowing smoke.

Oct 12, 2012 1:42PM
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one thing is clear: the economic system is broken, and it's because the educational system is broken. I am not talking sending everyone to college (college isn't for everyone), I am referring to the kind of education from K-12 that teaches students to think critically, be analytic and pick up trades that they can get into the workforce or start their own business right out of H.S.  I think people want their dignity and want to work to earn a living. I don't believe the larger group of people getting some form of government assistance work "just enough to maintain their government benefits."  There is a structural problem with our education system. We do very little in helping students discover their strength, in helping them navigate career and training options, and in setting clear expectations that if they choose to not take advantage of a quality education and training, that they shouldn't expect long-term government assistance.  But as the systems exists today, we can either blame people down on their luck or who are in a tough situations due to poor decisions or through no fault of their own, or we can get our education and training systems right so it gives people ZERO EXCUSE for not getting the skills they need to help themselves. 
Oct 12, 2012 1:42PM
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Great advice Liz Weston, telling people making $900 a month to save $500 for emergencies! How did Obama ever overlook you for secretary of the treasury? You must be MItt Rmoney's adviser on how he's going to increase defense spending, cut taxes 20% across the board, keep most of the ACA, while ending the mandate that pays for it and through all this still be able to reduce the deficit at the same time. Do either of you have a clue on finances? Show us MIss mittwitt moneywhiz, how you save $500 from that kind of income because it sure doesn't sound like you have any idea of what you're talking about. Or understand simple math.

Oct 12, 2012 1:41PM
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"A blogger named  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."

Poor People with kids get a huge handout from the IRS instead of paying taxes like the rest of us.  Kaiyan would have paid $0 (gotten everything back she put in all year) + gotten $1000 for her kid in cash from the IRS + $3094 in cash from the IRS for the earned income tax credit, for making 10,000 and having 1 kid.

So the IRS pays her 4,094 (which means she really didn't pay any payroll taxes, she got more than that back from the IRS).......and she probably gets other handouts like food stamps, etc.
Oct 12, 2012 1:38PM
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I came up with about $250 a month in spending they don't need.  A basic landline or prepaid cell does not cost $57 a month, so I took away $32 and left them $25.  There's $92 eating out, $82 in entertainment (yeah gotta have those X-Box games), and $41 in booze and smokes. 

 

Don't even get me started on how they manage to "make ends meet."  Under the table work, including drug dealing.  And surprise, surprise.  No mention of all the federal and state and non-profit organization (who often get state and federal tax dollar funding) help.  Why do these stories never add up all the freebies?????

 

 

 

Oct 12, 2012 1:37PM
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"Between 2009-2011, 88% of the nations income growth went to corporate profits.  1% went to wages"

~ThinkProgress

 

This is a historically unprecedented fact.  This is Robin Hood in reverse.  Robbing the poor to fatten up the rich.  If you think this economy is in trouble now, let this trend continue another 10 years and see where we're at.  A handful of people cannot sustain this economy, I don't care how much money they have.

Oct 12, 2012 1:35PM
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Romeny/Ryan are megatron WEINERS!

Most supporters of R/R are megatron WHINNERS! Get over it and accept it....

 

Obama/Biden All They Way AGAIN...1234, 1234

Oct 12, 2012 1:31PM
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SInce our bankruptcy laws no longer suspend bills owed, there is no relief in sight for these underwater folks. The only solution is to establish minimum wage solutions that guarantee a living wage to every worker!  While part time workers may get less, anyone in a full time position should be able to at least feed, clothe, and afford a car, registration fees, a residence, taxes, and the ability to pay for electricity and water!

This might mean raising import costs, due to 24 cent an hour labor rates in Romney Enterprise Zones that the Waltons, AT&T, Dell, GE, and many other corporations also seem to prefer in slave labor China, but we need to start caring for the folks in this nation first, not as an afterthought!

This is not Socialism!  The strength of our nation can not  allow the rich to take all of our wealth and not be required to return some of that wealth to the needs of the nation, whether it be for war, or for peaceful endeavors, or help for the poor!  Without a strong Middle Class our nation will sink into historical decline! Ignorance of past generations and cultures should allow us to learn from the mistakes of the past, not repeat them over and over again infinitum!

Oct 12, 2012 1:24PM
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These people who collect income from the government fail to realize or refuse to realize they could easily double their income working at Wal-Mart or something similar.  They need to get to work and stop collecting disability or whatever monies they recieve from the government. 
Oct 12, 2012 1:23PM
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Romeny/Ryan = Gigantic WEINERS!

 

Obama and the tough old guy all the Way AGAIN!

Oct 12, 2012 1:22PM
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A great man once said, "What do you mean I don't pay my bills? Why do you think I'm always broke?" Us poor people spend it all on drugs, remember that's why you want to spend taxpayer money to test us.
Oct 12, 2012 1:21PM
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And we wonder why the US has such huge debt problems.  Neither a lender nor a borrower be. . . .
Oct 12, 2012 1:19PM
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National Min. wage is 7.25/hour 
San Francisco min wage of $9.92/hour

2,040 hours in a work year = $14,790 - $20,236.80

hummmmmm
Oct 12, 2012 1:19PM
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Just think of how small the democrats base would be if the 50% that are on government assistance didn't need it.
Oct 12, 2012 1:18PM
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One of the most thought provoking things I ever read was an article that stated that one has to remember that not everyone is born with the same gifts.  Meaning not everyone is born with the same health, physical ability and intelligence, good parents and the morality that they teach.  There will always be the poor that count every penny and are extremely frugal but through no fault of their own just can not rise above it.  And there will also be the generationally poor who have kids out of wedlock with 5 different partners and no one pays support, they deal drugs etc. and are just a drain on society. PLEASE dont lump them together.  My family is poor and I work very hard both in the home and out and stretch our dollars like crazy.  My husband is disabled and our income is only ever going to be so much.  But that doesnt mean I have to look dirty, drive a rusty piece of crap and live in a shack with no tv and no phone eating cold beans from a can because a wealthier person says I "should".
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