Wider Opportunities for Women (WOW) is hoping to change the way we think about economic security for families. Through its Basic Economic Security Tables (BEST), WOW has created a more accurate poverty measure.
It is widely agreed that the traditional method for calculating poverty, namely the federal poverty measure, no longer provides an accurate assessment of poverty nor is it relevant to the particular constructs and circumstances of today’s families. The federal poverty measure is a decades-old relic that is based on the price of food. At the time the measure was developed, families of three or more persons spent about 1/3 of their after-tax income on food. However, currently food is only 1/7 of a family's budget, while the costs of housing, child care, and health care, none of which are taken into consideration in the federal poverty measure, have all risen disproportionately to the cost of food. Additionally, the current federal poverty measure uses pre-tax income, but the federal poverty thresholds were established using after-tax income, so while a family may not be officially “poor” they may actually fall below the federal poverty threshold once they pay taxes on their income.
The BEST tables include basic living costs, such as the costs of housing, utilities, child care, food, health care, transportation, personal and household items, and taxes into its calculations for determining its self-sufficiency or poverty thresholds. BEST does not provide for entertainment costs, like cable television or movie tickets, or other “middle-class amenities” like family vacations and dining at restaurants that so many Americans take for granted. WOW also took into consideration different household sizes and types and is working to create measurements that will reflect regional differences in the cost of living. For example, a household without small children will not have to pay for child care, and someone living in an urban community may pay more for housing but less for transportation.
WOW’s goal with BEST is to accurately reflect the particular circumstances of families across the country, something the federal poverty measure fails to do.
Based on BEST’s calculations, a family of four (two adults and two small children) needs to be earning almost $68,000 annually to make ends meet. That means that each worker in the family has to make $16.00 an hour, more than twice the federal minimum hourly wage of $7.25. The federal poverty threshold is far below the BEST calculation at $22,312 annually for a family of four. What makes WOW’s BEST self-sufficiency calculations different than other poverty measures is that it includes savings. Monthly allotments for both retirement and emergency savings are included in its formula so that economic security becomes more than just basic survival. According to WOW, a family of four should be saving about $226 each month ($170 for emergencies and $56 retirement). As WOW correctly notes, true economic stability occurs when families have some savings to support themselves during financial setbacks and to provide for themselves later in life. Building assets, such as savings, is essential to intergenerational security and is the only way families can move up the socioeconomic ladder and break the cycle of poverty.
WOW’s report is just one of the ways in which advocates and policymakers have begun to move toward anti-poverty strategies that are comprehensive and not singularly focused on income. The United States has also been experimenting with alternative methods to measure poverty. The Census Bureau’s Annual Social and Economic Supplement and the newly created Supplemental Poverty Measure are both used to paint a more accurate picture of poverty in the U.S. but neither have been adopted officially by any federal agencies.
The United Kingdom and other European Union countries take a different approach to economic stability that is based on social inclusion. Social inclusion is a way of addressing poverty beyond the traditional discussion of how much income a person needs to get by. For example, in the U.K. an individual is considered to be “poor” if the individual’s income is below a certain percentage of median income, not if his or her income is below some artificially calculated threshold. Proponents of social inclusion claim that this approach addresses the multiple barriers that prevent many individuals from participating fully in society.
No matter the measurement, calculation, or definition used, poverty and lack of economic opportunity are serious problems in the United States and around the world. By including realistic analysis of current costs and including savings, anti-poverty advocates and researchers, like those at WOW, are providing innovative and useful ways to discuss poverty and develop solutions.
Kelly Ward coauthored this blog post.