Calculating The Poverty Line

Objectives

• Students will learn how the federal government estimates the poverty line.
• Students will calculate alternatives to the federal estimate, in small groups or individually.
• Students will discuss the possible effects of underestimating the poverty line.

Materials
Copies of the How Much Income is  Really Required to Make Ends Meet? (PDF) for small groups or individual students (The handout can be adapted for younger students.)

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 2005, the federal government set the poverty line for a family of four at $19,874. 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? ($19,874/3=$6,624.67)
• 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?

x= ($6624.67x100)/20 = $33,123

The adjusted federal estimate is $33,123.

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 housing costs in the United States today run $1,160 per month, and a family with one preschooler and one child in elementary school pays an average of $1,048 per month in childcare costs.

• If the federal estimate was based on childcare cost, not food, the poverty line would be $37,728.

($1,048 x 12 months x 3= $37,728)

• If the federal estimate was based on housing costs, not food, the poverty line would be $41,754.

($1,160 x 12 months x 3= $41,754)

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%.

($33,123-$19,874=$13,249)/$33,123)=.40 (40%)

2. Judged against an estimate based on childcare costs, the federal estimate underestimates the income necessary by 47%.

($37,728-$19,874=$17,854)/$37,728)=.47 (47%)

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

($41,755-$19,874=$10,870)/$30,744)=.52 (52%)

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 $30,744 to $41,754 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.)

Follow-Up 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: $16,764
Retail salesperson: $18,678
Hairstylist: $19,800
Preschool teacher: $20,980
City bus driver: $29,744
News reporter: $31,320
Realtor: $35,670 (includes commissions)
Firefighter: $38,334

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

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.