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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 11:39AM
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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).

Oct 12, 2012 11:38AM
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...Free enterprise is a good thing...but it takes scruples and compassion to pull it off. with neither, we are left in the same type of lurch wall street left us in when they got caught with their pants down and the financial crisis ensued - it was the unabashed pursuit of wealth that put us in this spot. the mess HAS to be cleaned up people...And it is not just possible, but plausible - with a glaring example in th enot so distant past - that businesses, corporations and what not will sacrifice the well being of people to accumulate wealth. The past is repeating itself - now under the guise of free enterprise - There has to be a line drawn somewhere and I believe Obama is trying to do that...maybe hes not always right, but the status quo is killing us all - be carefull what you all wish for - Rome is not just burning - it is ON FIRE.
Oct 12, 2012 11:37AM
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Use a calculator people! If you rent a home, pay electric and water without any other expenses you need way more than 10k. Rent for a two bedroom trailer is 500-600 per month. Electric will run 100-200 per month and water is 40-60. Twelve months in a year and you need 7,680 on the low end and 10,320 on the high end. Groceries for my family runs 150-200 per week without any extras.  I live in a rural area of Missouri and cost of living is relatively cheap. Something has got to give and until corporate America tries to help us we are going down in a hurry. Spending all my extra cash on ammo and water. Good Luck.
Oct 12, 2012 11:37AM
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Well maybe the po' shouldn't be buying malt liquor and cigs with their money. Just yesterday I was standing behind a woman who was buying junk food on her EBT card and then bought a case of Milwaukee's Best, two cartons of cigs and 5 lottery tickets with money.....what does that say???? And here I was just buying a gallon of milk and I sure don't recieve no free benefits....ridiculous....
Oct 12, 2012 11:37AM
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It's time to break the cycle and unelect the unpresident.
Oct 12, 2012 11:34AM
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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.

Oct 12, 2012 11:34AM
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Seriously? Cable TV? And a cell phone? If that's what it takes to make a poor man feel rich then I must have been missing out all these years.

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.

Oct 12, 2012 11:31AM
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$10k/yr. for not working? sign me up..
Oct 12, 2012 11:29AM
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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.

 

Oct 12, 2012 11:28AM
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...Furthermore...EVERY DAY I hear such a lack of compassion from the man who is attempting to become our POTUS, my parents, almost every news outlet (especially FOX) or just about ANY Republican out there - it makes me sick...I am not one of the people looking for a handout nor have I ever taken one -even when I needed or could have used it....I DID however, accept the tax benefit from when I went to school. It was great, but reality was - that money was spent before I even got it BACK from the government. The repubs want to run this country like a business - essentially - whats failing - let it fail or fold up shop...if its working - dump more money into it....Just look in your neighborhoods or towns and see the businesses that have failed and the buildings are now vacant...and then think about how hard the repubs and corporations faught to get corporation designated as 'people'...2 and 2 together tells you that those vacant delapidated buildings where the business used to be are being treated the same way in which a republican government will treat YOU as an actual person. Think about it - they will sell you the Koolaide with a smile on your face, all the while with one hand in your pocket and a switchblade to your throat.
Oct 12, 2012 11:28AM
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You can not survive on 10,000 a year. You don't need a BA in economics to figure that out. For most people their income has maybe doubled in the last twenty years but cost of living has quadrupled. Our current government does not pay for their own gas. We the tax payer foot the bill. Even if they do pay it is atax write off. How does the average joe survive? By working for cash and not paying taxes. I have owned the same house for 21 years. In that time my electric went from 40-60 a month to 200+. My water bill went from 8-10 to 40-60 per month. Phone bill the same. Property tax more than doubled. Gas prices are what drives prices. Until we get a handle on that, this trend will continue. Wages should be based on how much everything else increases. Then us average joes might have a chance.
Oct 12, 2012 11:24AM
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This article should be called "Report shows that poor people need to spend twice as much than they earn to survive; and also to buy useless, often shiny, pieces of crap that may hold a slim chance of making their pathetically meaningless lives a little less miserable for an hour or two each day." Ah, that doesn't really roll off the tongue, maybe not.

"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.

Oct 12, 2012 11:23AM
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These stats are bogus.  Poverty? when you walk around with a cell phone attached to your ear, seriously expensive cable running on more than two tvs?  Familiar with more than a few people considered "poor" living with both, and btw, neither are a "necessity".  Way to many people have been collecting umemployment, disabililty to the end rather than take a job.  We can thank minimum wage for more part-time jobs rather than full and rising medical costs to government involvement over the last 45 years and a lack of competition among the medical insurers cuz the good ole socialists/free enterprise haters in DC won't allow us to shop state to state.  And the beat goes on as America goes down the toilet.  Thanks left-wing media, american sheep for alot of nothing good.
Oct 12, 2012 11:19AM
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After reading some posts I feel the need to correct some misconceptions.  First, employers pay people what their work acitivities are worth to those employers.  That pay may or may not constitute a "living wage", but it is not the responsibility of the employer to figure that out.  Second raising the minimum wage to $15 (or any other value in that neighborhood) in order to force employers to pay a "living wage" will result in higher prices for many of the staples of life, thus raising the cost of living which raises what a "living wage" should be.  This is known as a positive feedback loop, not a good thing.  Third, many posters have put their fingers on parts of the problem, some people on various forms of assistance have no incentive to get off and some people are poor despite being able to live within their means because they make decisions that keep them in poverty.
Oct 12, 2012 11:19AM
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Why some many jobs going to other countries and India. How can we stop this? Who has control of this. We do pay income tax, sales tax, state tax, gas tax, etc...... What the hell are you taking about?STOP....STOP...STOP...seending jobs to other countries.
Oct 12, 2012 11:16AM
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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...

Oct 12, 2012 11:15AM
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Anybody who lives in this country should know thatthere is no way you can get by on only $10K. I dont care who you are....At least not with any 'quality' of life. This would be mere existence. In 2000 I made a total wage (after taxes) of UNDER $10K, had a roommate. We had a goodwill couch, both slept in a studio apartment. One vehicle between the 2 of us (I purchased 2 years prior in the military), I slept on a futon in a sleeping bag and we ate top ramin and store bought chicken nuggets almost nightly. This is while I was going to school...I dont wish that type of life on anybody...Never knowing if youve got the money to get gas so you can go to work, if you will have enough money for dinner or lunch...sharing a 400 sq ft studio apartment with another person (not a spouse or significant other). I think its time that people STOP looking at everyone who lives in poverty or close to it as people who are just looking for a handout or as a drain on society...Granted, there ARE people who attempt tand sometimes succeed in bilking the system - THOSE are the people to take issue with. Lets not all assume howeever that everyone  in that financial status are just looking for a handout. Its time I think for us to show a little effing solidarity as a country and attempt to lift those people from that circumstance - the better off EVERYONE is in this country the better off the country is as A WHOLE.   
Oct 12, 2012 11:15AM
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The numbers given in this story as "Average annual expenditures" are wrong for most of these people thats how they make it. Some of these people are in subsidized housing they do not pay 8,771 for rent. Many are young and have room mates but do not file taxes together and although they have the same address the Government thinks they are two house holds. Some are College students living in dorms (if they get mail and file taxes they're considered a household). 730.00 for rent may be average in some area's but rural trailer parks are much cheaper and even in a lot of cities (not NY or LA) if you live in the crap part of town you can get a tiny dump for 400,00 to 500.00 there are rooming houses and heart break hotel's 100.00 to 200.00 a week everything included. The working poor live in the ghetto and may have someone crashing on their couch. Many small scale street (Drug) dealers crash on a friend or relatives couch so while they live off the radar they supplement other households. Plus if you make ten grand a year on the books you might be doing other work for cash money. Babysitting, Snow removal, Auto repair, Day work of any kind. I guess if you've never been poor you can't imagine the many different living situations out there I've only listed a few but people try to survive no matter how poor they are. Lucky for them it's still free to Vote.
Oct 12, 2012 11:14AM
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I like it when I drive through government housing areas and the cars parked there are Hummer H2s, BMWs, Jags and the such. I'd say unreported income and abuse of assistance programs might be an issue. 
Oct 12, 2012 11:12AM
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I'll tell you how it's spent.  Got to any casino on check day and it's packed!  Couple of days after check day, place is empty except for people like me......the blue hairs!


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