Calculating The Poverty Line

Framework

The federal poverty line is used to determine individuals' and families' eligibility for particular kinds of aid and services and also is an important benchmark that helps the nation know how many Americans are struggling financially each year, and over time.

In 2012, the federal government set the poverty line for a family of four at $23,050. The figure is based on food costs — the government identifies how much it should cost to feed a family of four for one year and then multiplies that number by three. The formula has been used for decades.

What it fails to capture is this: In today's America, food expenses represent just one-fifth of the average household budget, not a third. Other costs — housing, health care, childcare and transportation — typically eat up larger portions of a family's budget.

Suggested Procedures

Step One

Ask students if they have ever heard of the federal poverty line. If so, invite them to share what they know. Review the above framework and objectives with students.

Step Two

Working in diverse small groups, or individually, ask students to complete the handout (PDF). Be sure to "walk the room" and help students or groups who are struggling with particular portions of the word problem. The answers, along with mathematical solutions, appear below.

So, how much income is really required to make ends meet?

1: Adjusting the federal estimate

• Based on the government's estimate, what is the annual cost of food for a family of four? ($23,050/3=$7,683.30)
• If annual food costs represent one-fifth of a family's expenses, how much money does a family need to purchase food and everything else it needs?

$7,683.30 = x
      20          100

x= ($7,683.30x100)/20 = $38,416.50

The adjusted federal estimate is $38,416.50.

2: Using other benchmarks
What if the government used other factors —childcare or housing costs, for example — to calculate the poverty line, instead of food costs?

Typical rental (2 bedroom) costs in the United States today run $949 per month, and a family with one four-year-old and one school-aged child pays an average of $1,066 per month in childcare costs.

($1,066 x 12 months x 3= $38,376)

($949 x 12 months x 3= $34,164)

• If the federal estimate was based on childcare cost, not food, the poverty line would be $38,376.
• If the federal estimate was based on housing costs, not food, the poverty line would be $34,164.

So, how severely does the federal poverty line underestimate income a family really needs to make ends meet?

1. Judged against the adjusted federal estimate, the federal estimate underestimates the income necessary by 40%.

($38,416.50 -$23,050=$15,366.50)/$38,416.50)=.39 (40%)

2. Judged against an estimate based on childcare costs, the federal estimate underestimates the income necessary by 40%.

($38,376-$23,050=$15,326)/$38,376)=.39 (40%)

3. Judged against an estimate based on housing costs, the federal estimate underestimates the income necessary by 52%.

(34,164-$23,050=$11,114)/$34,164)=.33 (33%)

Step Three

Remind students that the federal poverty line serves two primary purposes: 1) to establish eligibility (or ineligibility) of individuals and families for certain kinds of aid and services, and 2) to help the nation gauge the number of Americans who are struggling financially, in a given year and over time.

As a whole class, discuss:

• Based on what we've learned, how likely is it that a family making $25,000 a year — an income above the poverty line — would struggle financially? Why? (Very likely — we've learned that it could take anywhere from $23,050 to $38,416 for a family of four to make ends meet.)


• What are some possible effects of the government underestimating the poverty line? (Answers will vary, but may include: people who need aid and services won't get them; the government won't really know how many people are struggling; it paints a healthier economic picture than there really is.)


• Why might the government be hesitant to change its formula for calculating the poverty line? (Answers will vary, but may include: we're running a deficit, and don't have money to provide more aid; it's the way they've always done it; changing it would mean changing lots of government programs, and that would be cumbersome for a big bureaucracy like the federal government.)


• Do you think the federal government should change the way it calculates the poverty line? Why? (Answers will vary.)

Statistical data in this activity is drawn from Ending Poverty, eds. John Edwards, Marion Crain and Arne L. Kalleberg, The New Press, 2007, Income, Expenditures, & Wealth, U.S. Census Bureau, 2004, at www.census.gov and the Bureau of Labor Statistics at www.bls.gov.

Extension Activity

To help students understand that working people with all kinds of jobs can struggle financially or experience poverty, allow time for them to research the median wages of different professions. A good place to start is the Bureau of Labor Statistics. Samples include:

Profession: Median Salary

School cook: $24,230
Retail salesperson: $25,130
Hairstylist: $26,460
Preschool teacher: $30,150
City bus driver: $37,440
News reporter: $27,600
Realtor: $51,170 (includes commissions)
Firefighter: $47,720

Note: These salary numbers assume full-time employment (40 hours per week) for 52 weeks per year.

Source for Calculating the Poverty Line

All of the salaries are from this link: http://www.bls.gov/oes/current/oes_nat.htm

National Housing Conference, Factsheet: Most to Least Expensive Rental Markets from Rankings for More Than 200 U.S. Metropolitan Areas,which rents are based on the FY2012 Fair Market Rents from the U.S. Department of Housing and Urban Development. More information on how it is calculated is available here: http://www.huduser.org/portal/datasets/fmr.html