The Definition of Poverty
The poverty thresholds, as determined by the United States Census Bureau, vary by the size of a household and typically increase from year to year. In 2017 it was $12,060 for a household of one person. A family of three persons was considered poor if it earned less than $20,420 in 2017 (this amount may vary a little bit depending on the make-up of the family). It was $24,600 in 2017 for a family of four. For larger families, the thresholds are higher. The Bureau looks at the amount an average family spends on necessary food expenses and multiplies this by three to arrive at the poverty line. Note that the U.S. Census Bureau does not distinguish between the different areas of the country, even though the cost of living varies widely within the United States.
When measuring a household’s income, the U.S. Census Bureau includes all forms of monetary income, such as earnings, unemployment compensation, cash welfare payments, Social Security benefits, pensions, interest, rent, alimony, and child support. The official poverty rate does not include non-cash benefits, such as food stamps, housing subsidies, and health care assistance. However, since 2014, the Census Bureau began to publish an unofficial poverty rate which includes the above mentioned forms of income plus income from earned-income tax credits, housing subsidies, school lunch and home heating subsidies. It also adjusts income for taxes, child care, health insurance and out-of-pocket medical costs. In addition, it reflects regional cost of living differences.
According to the official definition and based on a Census Bureau survey of approximately 100,000 households, 12.7% of the United States population lived in poverty in 2016 (latest year reported). This is lower than in 2011 and 2012 (15%) and 2015 (13.5%). For more detailed information about the United States poverty rate, including rates among varying demographic groups, visit http://www.census.gov/econ/ (then select “Income and Poverty).
How the Government Uses the Poverty Line
The government uses the poverty line to determine who receives financial handouts and in-kind assistance. Many poor qualify for programs such as TANF (Temporary Assistance to Needy Families), housing subsidies, food stamps, Medicare or Medicaid, Social Security and disability benefits, school lunch vouchers, child care assistance, and a host of other state or federal programs. Households are eligible for certain programs if they fall below the poverty line, or within a factor of the poverty line (for example, below 150% of the poverty line).
Median Household Income
Real (adjusted for inflation) median United States household income rose to $59,039 in 2016. This was an increase in real terms (inflation adjusted) of 3.2% since 2015 ($57,230). It was $53,046 in 2013, $50,502 in 2011, and $49,777 in 2009. In 1965, real median income in the United States was $36,847.
Incomes vary significantly across different racial and other demographic groups. For more information about median and mean incomes in the United States, including distributions among racial groups, please visit http://www.census.gov/econ/ (then select “Income and Poverty).
Median incomes also vary quite a bit across geographic areas. Median household income was lowest at $36,919 in Mississippi, and highest in Maryland at $70,004 in 2011 (latest available year). Across the world, Haita had the highest reported poverty rate at 80% (CIA World Fact Book). Switzerland and France had poverty rates of 6.9% and 6.0% respectively. Mexico’s poverty rate was 18.1% and Zimbabwe’s stood at 68%. Comparisons of poverty rates across different countries may be tricky because not all countries use the same definition for what they consider poverty.
Real (adjusted for inflation) median incomes in most industrialized countries increase during non-recessionary years.
How to Avoid Poverty
While some causes of poverty relate to factors beyond a household’s immediate control (economic conditions in a certain area, family emergencies), much of today’s poverty can be prevented by better individual decision-making. Individuals who make sound personal decisions in their private, academic, and professional lives fare significantly better than individuals who don’t. The following are keys to sound economic decision-making, which has helped many households avoid poverty:
1. Live a healthy lifestyle.
People who avoid addictions, such as gambling, alcohol, drugs, and eating disorders, function more effectively in their professional careers.
2. Learn a trade.
People who invest in themselves by learning a marketable trade or skill (by teaching yourself, or by going to school, or through on-the-job training), experience higher earnings than people who don’t.
3. Invest wisely.
People who save and make sound financial decisions experience a greater degree of financial success. Examples include investing in diverse and financially sound assets, not going into excessive debt, building a sound credit rating, and purchasing health, disability, and life insurance. Many individuals and households who borrowed an irresponsibly large amount of money in order to buy a house several years ago (during the housing boom and the sub-prime mortgage years) currently find themselves in financial difficulty and possibly without their house and without a place to live. When you borrow money to purchase a house or any other asset, be sure that you can afford to make payments in the future, even when asset prices decrease and/or interest rates increase (if you negotiated a variable rate).
4. Make sound relationship decisions.
People who choose a responsible partner and have children at a financially appropriate time (or do not have children) experience better financial and emotional health.
People who have made unwise decisions, or who have fallen victim to poverty for reasons beyond their control (the economy, natural disasters, disabilities) often find themselves applying for government assistance. Many programs provide temporary relief; however, many of the government anti-poverty programs also discourage many people from working. Welfare recipients are often financially better off continuing to receive the government benefits as compared to having a job. Some welfare programs (see the next section for a description of welfare programs) encourage family break-ups by awarding more generous benefits, such as housing, food stamps, and child care assistance, to single mothers. The Welfare Reform Act of 1996, which implemented stricter eligibility requirements and limits on the number of years someone can be on welfare, has been a step in the right direction, and has provided more families with the incentive to get off welfare and work. But has it done enough?