Cost of Living: What You Need to Earn to Live Here
The U.S. Census Bureau uses the federal poverty threshold to determine the poverty rate and count the number of people in poverty each year. That threshold, which has been calculated the same way for nearly 50 years, is often criticized for being outdated and inaccurate.
The Economic Policy Institute offers an alternative measure of the income needed to afford an adequate standard of living. The institute publishes that measure each year in its Family Budget Calculator. For many areas of the country, the difference between the federal poverty threshold and the alternative necessary minimum income reported by the institute is significant.
“The Census Bureau’s traditional poverty measures fall far short of the level needed for a family to live modest but secure lives, which is the standard we use for our Family Budget Calculator,” said Douglas Hall, director of the Economic Analysis and Research Network at the Economic Policy Institute.
For example, even in the least expensive area in the country—Marshall County, Miss.—the institute’s reported minimum income for a family of four, $48,144, is nearly twice that of the federal poverty threshold, $23,283. In the country’s most expensive area—New York City—that ratio increases to 4-to-1.
In addition to understating how much it really costs to live, Hall said the federal poverty threshold also doesn’t take into account differences in the cost of living across the states. For example, the U.S. Census Bureau would treat the income of a family in San Francisco the same as a family in rural Alabama, despite the major differences in the cost of living between these two areas.
To resolve this, the institute’s Family Budget Calculator uses “geographically appropriate data across all variables, like housing, which is not addressed at all in the federal measure,” said Hall.
The institute’s report looks at a number of essential household costs that vary across jurisdictions, including housing, food, child care, transportation, health care, other necessities and taxes, to calculate a minimum annual income. Housing and child care costs are the biggest drivers of differences in costs between geographic areas, Hall said.
For example, child care costs for a two-parent, two-child household range from slightly more than $500 a month in rural Mississippi to more than $2,000 a month in many parts of New York. The same household would spend $575 on housing in rural Kentucky, but more than $1,800 in Hawaii.