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The Ladder

A Blog from New America's Asset Building Program

Why Poverty in the U.S. is Worse Than it Seems

Published:  May 18, 2012

Slate's new map of the week plots the U.S. poverty rate by county with data from 2007 to 2010. At first, it reveals a straightforward story: The Great Recession made poverty worse. Everywhere.

As bad as the picture looks, though, it’s actually a rosy rendition.

Here’s the problem: The way poverty is measured is outdated and based on faulty assumptions. It’s meant to tell us how many people have incomes below a federally defined threshold. In 2010, that threshold was $22,113 for a family of four. Since the formula was initially calculated by tripling the cost of a basic food basket in the 1960’s (and adjusted from that point to inflation since), it fails to reflect a modern family budget, which spends much more on housing, transportation, medical expenses, and child care than the Cleaver’s ever did. It also doesn’t account for geographical variation. The purchasing power of a family earning $23,000 in Manhattan, New York, unsurprisingly, is different than the same family living in Manhattan, Kansas.

Accounting for these shortcomings provides a glimpse of how unreliable the official poverty count is. When the Obama Administration released an alternate measure in 2011 using an updated formula, 3 million more people were classified as “poor.”

But even the best line still classifies people in the binary “poor” or “not poor.” As the recession showed, millions of families are situated on the edge of a financial precipice with little to hold onto. They are one car repair, one medical emergency, or one job loss away from losing their grip on the middle-class. In 2007, almost one-third of all families and over two-thirds of the poorest families lacked the savings to live at the federal poverty line for three months without income. They may not have been “poor” but they were “pre-poor.” Capturing the scope of financial insecurity on both sides of the poverty line would lead to better policy and better outcomes for families.

Current policy falls short of both the response to and prevention of families’ descent over the financial cliff. Public assistance programs function as first responders and the recession spurred increased demand. That pressure revealed the programs’ strengths and weaknesses.

Recent analysis by the Center on Budget and Policy Priorities reveals that programs like SNAP (formerly known as food stamps) and the Earned Income Tax Credit in 2010 prevented 7 million people from dipping below the poverty line. The lifeline they provide for families struggling to make ends meet is critical. Too often, though, the scale of the need far exceeds the scale of the response. They could and should do more.

First, public assistance programs must be accessible when families need them. Many families are unaware that they’re eligible for support. Those that are aware can be required to visit six human service offices to receive the benefits they’re seeking.

Second, these programs must be funded to serve all families that qualify and at adequate benefit levels. Families receiving SNAP for food assistance frequently run out benefits by the third week of the month. Only 40 percent of eligible families receive TANF and only one out of six families receive child care subsidies.

Finally, we need to make sure there is a smooth way for people to transition off of public assistance. In many programs, families are penalized for taking actions that bolster their financial stability -- like increasing earnings and savings. A family in Iowa, for instance is as well off earning $12 an hour as $18 due to the loss of benefits. This creates an unnecessary trade-off between investing in a financially stable future and supporting a family today.

Improving the effectiveness of our safety net would help address the pervasive hardship illustrated by the poverty map. But the core problem isn’t having enough ambulances at the bottom of the cliff; it’s that these families are tumbling down in the first place. We need a fence at the top to make a sustained change.

Helping families save is one method of construction policymakers should consider. Let’s say a family’s income drops after a father loses his job. Research from the Urban Institute reveals that a family in that situation without savings is two times more likely to miss a meal, rent, or utility payment than a family with savings.

There are effective models already in place that Congress could bring to scale. SaveUSA, for example, is a tax time pilot that offers a match to low-income filers who opt to save a part of their tax refund. Results have been strong, showing that families are saving and maintaining their balances. The Saver’s Bonus Act, previously introduced by Senator Robert Menendez (D-NJ) would make this opportunity accessible to millions of low- and moderate- income families.

The further you fall, the harder it is to get back up. By broadening the way we look at financial security, we can design policies that intervene early, prevent unnecessary hardship and sacrifice, and allow families to move forward in their lives. That should be a border fence we can all agree on.

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