If someone asked you, "How much money do people need to earn to live today?" what would you tell them? Would you focus on a bare-bones income or on a larger amount that would allow people to meet their basic needs?
For years, economists have studied questions like this. The first widely followed guidelines were published in 1964 as the Federal Poverty Guidelines. They focused on the income level below which people were considered to be living in poverty.
These guidelines have been reviewed and critiqued by many people. In 2011, the Census Bureau introduced a Supplemental Poverty Measure to try to better define the threshold at which poverty begins. This measure includes not only cash income, but also federal in kind benefits for food and tax credits.
Rather than focusing on poverty guidelines, the Economic Policy Institute (EPI) suggests focusing on what people need to live in a "secure, but modest living standard." EPI's Family Budget Calculator (www.epi.org) takes into account what families need for food, child care, transportation, health care, other necessities and taxes.
The costs are calculated for more than 600 communities in the United States. There are huge variations in some living costs. For example, a two-parent, two-child household in Nantucket, Mass., would pay $1,877 per month for housing, compared with $570 in several counties in Tennessee. Monthly child care costs for two children range from $334 in rural Mississippi to $1,318 in Washington, D.C.
To test the Family Budget Calculator, I entered two parents and one child in Appleton and got these suggested monthly amounts: housing, $681; food, $598; child care, $827; transportation, $603; health care, $1,429; other necessities, $327; and taxes, $335 - for a total of $57,600 annually.
The projected health care costs assume the full cost of premiums and out-of-pocket costs are paid by individual consumers. If your employer pays for part of the cost of health insurance premiums, you may pay substantially less. Housing expenses are based on renting a two- or three-bedroom apartment. Food costs assume the second least expensive of the four USDA food plans, with almost all food being bought at a grocery store and prepared at home.
The Family Budget Calculator is a thoughtful tool that points out how much essential services cost and calls into question the value of focusing on poverty as the baseline. A frugal person would find it challenging to live on a poverty level income.
The EPI calculator invites us to examine what is needed to live in a modest, but comfortable way. Try plugging in your own information. See what you think about the results. What do you think are an individual or family's reasonable needs?
- Alan Prahl is with FISC, a nonprofit program of Goodwill NCW. He can be reached at email@example.com.