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
While I understand that in big metro areas, rent is expensive, but when I made less than $10k (with a kid and a wife), I had a roommate to help offset the cost of the apartment. Yes it was cramped. Yes I didn't have cable, a cell phone, internet service, or any other luxury, but that is what luxuries are - things you don't NEED to live another day. For every person living alone in an apartment and complaining about paying their entire income JUST on rent, there are dozens of people who live in similar apartments with 1 or 2 or even 3 other people, because they understand that you can't make $10k and spend $20k and sustain that kind of living.
I don't understand how, if the minimum wage is roughly $15k per year, why are 20% of households only earning $10k per year? If I only made minimum wage, I would be working two jobs, just as I did the first decade I was an adult.
People need to stop thinking that they are entitled to something more. I know plenty of uneducated people who work low paying jobs and still manage to pay their bills and stay out of debt. They don't spend money on entertainment because they don't have it. They don't live in a place they can't afford. Sure it is a struggle to make ends meet, and when medical issues come up it can set them back for a few months or even years, but they make it. Anyone not making at least $15k per year either can't work because of a mental or physical handicap, or are too lazy to work (or believe they shouldn't HAVE to work more than 30 hours a week).
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.
You want to know what's really going on? Most poor people work very hard, at jobs "normal" people like you wouldn't stoop to, to be able to buy whatever few extra things they can afford that will make them feel a little less like a piece of s**t on the bottom of your shoe. As you can see, relatively small and seemingly reckless displays of any type of status- or confidence-building shopping can go a very long way; and the most depraved, demoralized of the poor will gladly spend money on these shiny toys over food, if it comes to that.
No such thing in the United States as "poor" people. The peeps who can't work refuse to work or get paid the minumin wage get so many perks they are really are middle case. I"ll give you some of the perks they get, and you know figure out what they cost you, and how much it is worth.
They and their kids get free health care.
Their kids get free breakfast(we have 2 servings in NY State) and lunch even when school is out.
The un wed women get around $6000 earned income credit from the Federal and State Governement in Jan or Feb when she files her income tax. That is why consumer spending is up in those two months, they come to the malls in droves with checks in hand. And watch out sneaker stores and bling, cause they been waiting all year for this day!
Free bus, subway or cab fare.
Food stamps which gives her 2 for 1 on all food items
Rent reduction of about 50%-75% on all approved welfare apartments.
Free cell phones
Reduction on electric and gas bills
Free Thanksgiving and Christmas food, either prepared or given in goody baskets if Moms is to "busy" with other things to cook for her kids.
Free college tution if and when one of her little babies decides that yea college is for me.
I am sure I missed a few, but you get the point we take care of the peeps in this country and no onw is going hungry or cold. At least not from societies stand point we have done our jobs in handing them the poor everything they need and want.
"I suspect that unreported income... is a significant factor."
Really? How dishonest. I know if I was living in abject poverty, I would want to make absolutely sure the feds got their fare share of that $20 I made last night watching my neighbors kid. Hell, it's only fair. I mean, after all, they do give me craploads of taxpayer money so that I can live in a trailer with a big screen tv, drive a $500 car with $1500 rims, and basically die a sad pathetic white trash loser who leaves behind nothing but debt. Never mind that I can't afford to fix the car when it breaks and the roof of my trailer is patched up with aluminum foil: this is great!
You people should be ashamed of yourselves.
Here you have Mitt Romney's 47%, most of whom feel that they are entitled to a cell phone, a big flat panel TV, and airconditioning among others...
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