Key Takeaways
- A prominent strategist contends that the real “poverty line” for a family of four is $140,000, not the official threshold of $32,150.
- Created in the 1960s, the formula used to calculate the poverty threshold does not accurately reflect the realities of modern household budgets, the strategist says.
One analysis contends that a family of four is below a meaningful “poverty line” if they earn less than $140,000 per year, far more than the official federal threshold of $32,150.
Michael Green, chief strategist and portfolio manager at Simplify Asset Management, wrote this week about how household finances have changed since 1963, when the Census Bureau established the formula used to measure the poverty line—the amount of income below which a family cannot afford the necessities of life.
Then and now, the government considers a family below the poverty line if its income is less than three times the minimum amount of money needed to buy food. That figure is adjusted for inflation every year. The formula is based on surveys from the 1950s that showed approximately one-third of a family’s budget was devoted to food.
What This Means for The Economy
The fact that families earning six figures can still struggle financially explains the widespread dissatisfaction with the economy, even among those with above-average incomes.
But other expenses, such as housing, health care and child care, now take up much larger portions of the family budget, crowding out food. Food spending made up 12.9% of a typical household’s expenditures in 2023, according to the most recent data available from the Bureau of Labor Statistics.
Using the logic of the original formula but changing the amounts to reflect modern household budgets, Green calculated that the real poverty line is actually 16 times the amount needed to buy food, or somewhere between $130,000 and $150,000.
To illustrate his point, Green added up typical living expenses based on national averages and found that a family of four will spend $136,500 a year on child care, housing, food, transportation, health care, taxes, and other essentials.
Green is an outlier when he contends that $140,000 is the real poverty line. That’s far more than the average family income of $105,000, and it is possible to spend less than the national average on the categories Green measured.
The Census Bureau itself, after decades of debate about how poverty should be measured, has developed an alternative barometer called the Supplemental Poverty Measure that considers a broader set of necessities such as food, shelter, clothing, utilities, phone, and Internet. The SPM poverty line for renters in 2023 was $37,482—far below Green’s estimate.
Whether or not a family making $140,000 is truly impoverished, Green’s analysis highlights the fact that the rapid cost-of-living increases since the pandemic have put significant pressure on families, even for those with above-average incomes.