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Economic events of 2015
What Families Need to Get By : EPI’s 2015 Family Budget Calculator
Issue Brief #403
The income level necessary for families to secure an adequate but modest living standard is an important economic yardstick. While poverty thresholds, generally set at the national level, help to evaluate what it takes for families to live free of serious economic deprivation, the Economic Policy Institute’s Family Budget Calculator (Gould et al. 2015a)—updated in August 2015 with data for 2014—offers a broader measure of economic welfare and provides an additional metric for academics and policy experts looking for comprehensive measures of economic security. The basic family budgets presented in this report, as well as those presented via the Family Budget Calculator itself, measure the income families need in order to attain a secure yet modest living standard where they live by estimating community-specific costs of housing, food, child care, transportation, health care, other necessities, and taxes.
Use the family budget calculator
The budgets estimate community-specific costs for 10 family types in 618 locations across the U.S.
EPI’s Family Budget Calculator is particularly useful given the inadequacies of both the federal poverty line and the Supplemental Poverty Measure (SPM) when it comes to measuring families’ fundamental needs (CCED 2013). EPI’s basic family budgets overcome many of these shortcomings by providing a wealth of geographic and family-type detail; they are calculated for 618 U.S. communities and 10 family types (either one or two adults with up to four children, including, for the first time, adults without children). The rich detail afforded by these geographic and family-type customizations, the relative accessibility of these numbers, and the rigor and transparency with which they are developed make the family budgets presented in this report and via the Family Budget Calculator uniquely valuable to non-experts and academics alike.
This issue brief begins by explaining in greater detail the advantages of EPI’s basic family budgets as compared with the federal poverty line and the Supplemental Poverty Measure. It then illustrates the budgets’ most important feature—their high degree of customizability by family type and community—by demonstrating how family budgets vary significantly depending on family composition and geographical area.
The following is a sample of findings from the 2015 update of EPI’s Family Budget Calculator:
- The basic family budget for a two-parent, two-child family ranges from $49,114 (Morristown, Tenn.) to $106,493 (Washington, D.C.). In the median family budget area for this family type, Des Moines, Iowa, a two-parent, two-child family needs $63,741 to secure an adequate but modest living standard. This is well above the 2014 poverty threshold of $24,008 for this family type.
- For a two-parent, two-child household, housing ranges from 10.2 percent of a family’s budget in Binghamton, N.Y., to 25.6 percent in San Francisco. Housing for this family type is most expensive in San Francisco ($1,956 per month), and is least expensive in Franklin, Poinsett, and Grant counties in Arkansas ($561 per month).
- Across regions and family types, child care costs account for the greatest variability in family budgets. Monthly child care costs for a two-parent, one-child household range from $344 in rural South Carolina to $1,472 in Washington, D.C. In the latter, monthly child care costs for a two-parent, three-child household are $2,784—nearly 90 percent higher than for a two-parent, one-child household.
- Among two-parent, two-child families, child care costs exceed rent in 500 out of 618 family budget areas.
- Even in the best of economic times, many parents in low-wage jobs will not earn enough through work to meet basic family needs. Annual wages for one full-time, full-year worker earning the federal minimum wage total $15,080. Even when accounting for higher minimum wages in states and localities, this full-time, full-year minimum-wage worker is paid below what is necessary for one adult to meet her local family budget—and far below what it takes for an adult with even just one child to make ends meet anywhere.
Beyond measures of poverty to measures of economic adequacy
Official poverty thresholds such as the federal poverty line and Supplemental Poverty Measure are incomplete indicators of what it takes for families to live free of economic hardship. EPI’s family budgets overcome the most substantial limitations of these measures and paint a portrait of what families need in order to live securely yet modestly.
Poverty thresholds: Limitations and problems
Poverty thresholds are generally national income levels used to measure the number and share of Americans who are economically deprived. Conceptually, these measures are important metrics, but are fundamentally different from EPI’s basic family budgets. Families above poverty thresholds are just thought to be free of outright material deprivation. In contrast, family budgets offer a broader measure of economic adequacy by measuring the dollar amount necessary for families to live securely but modestly in various communities across the nation.
The federal poverty line is also woefully outdated, and little has been done officially to remedy the situation. For instance, the current methodology for determining the federal poverty line was designed four decades ago in 1963 and has only been updated since for overall inflation. Thus, for example, the decline in prices of high-end electronics over the past generation has put downward pressure on the poverty threshold and measured poverty rates, even though the price of smartphones has very little to do with whether families experience outright material deprivation. Academics, policy analysts, and social scientists—most of whom agree that the federal poverty line is seriously outdated—have been engaged in dialogue and debate about alternative measures for some time.
In response, the first Supplemental Poverty Measure was published in 2011 to better reflect both the resources available to families and to provide a more accurate threshold of economic adequacy (Short 2011). This new measure calculates the financial resources it takes to live free of material deprivation—i.e., the cost of food, clothing, shelter, and utilities—by adjusting for average expenditures on these items (and accounting for geographic differences in housing costs) as opposed to simply adjusting for overall inflation. In addition, to calculate a poverty rate, the SPM reflects the resources available to households through government policies such as tax credits and in-kind public benefit programs that affect a family’s income and hence, their poverty status.
While the Supplemental Poverty Measure does provide a more comprehensive metric than the federal poverty line, it does not measure child care costs appropriately and uses geographic variability only for its housing calculation (CCED 2013). SPM data are also limited to relatively large geographic areas.
The added value of EPI’s basic family budgets
The EPI Family Budget Calculator overcomes many of the shortcomings of the federal poverty line and the Supplemental Poverty Measure by illustrating the income required to afford an adequate standard of living for 10 family types living in 618 specific U.S. communities. As will be explained in greater detail shortly, that the budgets differ by location is important, since certain costs, such as housing, vary significantly depending on where one resides. Geographical cost-of-living differences are built into the budget calculations by incorporating regional, state, or local variations in prices (depending on item). This geographic dimension of EPI’s family budget measurements offers a comparative advantage over using poverty thresholds, which only use a national baseline in their measurements (e.g., the federal poverty line), or which use a geographic component only for measuring home prices (e.g., the SPM).
Basic family budget measurements are also adjustable by family type because, as illustrated in the following section, expenses vary considerably depending on the number of children in a family, if any, and whether a family is headed by a single parent or two parents. The 10 family types include one or two adults with zero to four children. To estimate family costs, we assume one-child families have a 4-year-old, and that a second child is 8 years old, a third 12 years old, and a fourth 16 years old.
The components of EPI’s basic family budgets
The following is a brief description of each component of EPI’s basic family budgets and the restrictions and/or working assumptions employed. For a comprehensive discussion of our methods and data sources, see Gould et al. (2015b).
- Housing costs are based on the Department of Housing and Urban Development’s (HUD) fair market rents, or FMRs (HUD 2014). FMRs represent rents (shelter rent plus utilities) at the 40th percentile (i.e., the dollar amount below which 40 percent of standard quality rental units are rented) for privately owned, structurally safe, and sanitary rental housing of a modest nature with suitable amenities. Rents for studio apartments were used for one-person families, one-bedroom apartments were used for two-adult families, two-bedroom apartments were used for families with one or two children, and three-bedroom apartments were used for families with three or four children (based on HUD guidelines).
- Food costs are based on the “low-cost plan” taken from the Department of Agriculture report Official USDA Food Plans: Cost of Food at Home at Four Levels (USDA 2014). This plan is the second-least-expensive of four types of food plans and assumes almost all food is bought at the grocery store and then prepared at home. The USDA food plans represent the amount families need to spend to achieve nutritionally adequate diets.
- Transportation expenses are based on the costs of owning and operating a car for work and other necessary trips. The National Household Travel Survey (FHA 2009) is used to derive costs based on average miles driven per month by size of the metropolitan statistical area or rural area and multiplied by the cost per mile, as provided by the Internal Revenue Service (IRS 2013).
- Child care expenses are based on costs of center-based child care and family-based care for 4-year-olds and school-age children, as reported by the Child Care Aware of America annual report on the cost of child care by state (CCAA 2014). We assume all families in urban areas utilize center-based care and all families in rural areas utilize family-based care.
- Health care expenses have two components: Affordable Care Act insurance premiums and out-of-pocket expenditures. Premiums are based on the lowest-cost bronze plan in the rating area, adjusted for family size, age of user, and tobacco surcharge (Kaiser 2014). For the purpose of the family budgets, all members of the family are assumed to be non-smokers, and all adults are assumed to be 40 years old. Out-of-pocket medical expenditures are calculated for adults and children separately by region and are differentiated between metropolitan statistical areas and non–metropolitan statistical areas for those covered by private insurance (HHS 2014).
- EPI’s basic family budgets include the costs of other necessities such as apparel, entertainment, personal care expenses, household supplies (including furnishings and equipment, household operations, housekeeping supplies, and telephone services), reading materials, school supplies, and other miscellaneous items of necessity as reported for the second quintile from the Bureau of Labor Statistics Consumer Expenditure Survey (BLS 2014).
- The family budget components enumerated thus far sum to the family’s post-tax income. To calculate the tax component of family budgets, we utilize the National Bureau of Economic Research’s Internet TAXSIM (NBER 2013) to gather information on federal personal income taxes, state income taxes, and federal Social Security and Medicare payroll taxes.
- EPI’s basic family budgets sum each of these components to get the total cost of living in each area across the United States. Notably, these budgets do not include several components of what might be considered a middle-class lifestyle. In particular, they do not include any savings: There are no savings for a rainy day (e.g., job loss or unexpected medical bills), savings for retirement (except through Social Security payments), or further investments in their children (e.g., enrichment activities or college savings). Thus, these are adequate but decidedly modest family budgets.
As compared with previous iterations of the Family Budget Calculator, three major changes were included in this update. First, we have added four additional family types: single persons without children, married couples without children, single parents with four children, and married couples with four children. Second, our new health cost calculation reflects premiums available in the health insurance exchanges established by the Affordable Care Act. Third, the “other necessities” category now includes additional items previously excluded, such as housekeeping supplies and telephone services. Because of these enhancements, the 2015 family budgets are not comparable to previous versions. What we sacrifice in cross-time comparisons, we compensate for with the most up-to-date and relevant methodology.
Higher expenses for bigger families
Budgets rise significantly with family size, since more children require more housing, health care, and child care. Monthly child care costs for a two-parent, one-child household can be as low as $344 in rural South Carolina and as high as $1,472 in Washington, D.C. In the latter, monthly child care costs for a two-parent, three-child household are $2,784—nearly 90 percent higher than for a two-parent, one-child household.
For illustrative purposes, the monthly family budgets for eight different family types in Des Moines, Iowa, the middle-priced family budget area,1 are depicted in Figure A. They range from $2,236 for a one-adult family to $6,358 for a two-parent, three-child family (though not shown here, data for four-children families can be found in the Family Budget Calculator). Some items, such as transportation, do not change substantially with the number of children in a family, but an expense such as child care does. This becomes apparent when comparing the two family types that contain two people. A one-adult, one-child household monthly budget ($3,854) exceeds a two-adult household budget ($3,132) by $722, with childcare ($673) accounting for over 90 percent of the difference.
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