Characteristics of Low-Income Families

National Poverty Center Working Paper Series

#06©\37

October, 2006

An Assessment of the Income and Expenses of America¡¯s

Low©\Income Families Using Survey Data from the National

Survey of America¡¯s Families

Gregory Acs, The Urban Institute, and Austin Nichols, The Urban Institute

This paper is available online at the National Poverty Center Working Paper Series index at:



Any opinions, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not

necessarily reflect the view of the National Poverty Center or any sponsoring agency.

An Assessment of the Income and Expenses of America¡¯s Low-Income Families

Using Survey Data from the National Survey of America¡¯s Families

by

Gregory Acs & Austin Nichols

The Urban Institute

2100 M Street NW

Washington, DC 20037

September 28, 2006

Gregory Acs is a principal research associate at the Urban Institute and a research

affiliate with the National Poverty Center. Austin Nichols is a research associate at the

Urban Institute. Dr. Acs can be contacted via phone at (202) 261-5522 and via email at

gacs@ui.; Dr. Nichols can be contacted via phone at (202) 261-5379 and via

email at anichols@ui.. Funding for this research was provided through the

National Poverty Center and the Assessing the New Federalism project at the Urban

Institute. The authors thank Gina Adams, Olivia Golden, Pamela Loprest, Patricia

Ruggles, Margery Austin Turner, Sheila Zedlewski, and participants at the National

Poverty Center¡¯s May 2006 conference on Consumption, Income, and the Well-Being of

Families and Children for their helpful comments; Peter Tatian for providing information

on housing costs; Jennifer Holland and Mary Murphy for production assistance; and

Elaine Maag for providing estimated federal taxes.

Introduction

The policy community is increasingly focusing attention on alleviating the strain on

low-income working families, particularly those with children. Research has examined

the size and characteristics of low-income working families, the amounts and sources of

income available to them, and, to a lesser extent, the expenses that these families face,

such as housing or medical expenses. This paper seeks to unify discussions of income

and expenses, to see if low-income working families are able to meet their expenses with

the limited resources at their disposal.

Relatively few data sets contain both detailed socioeconomic information and

information on consumption expenditures for a large, nationally representative sample of

low-income families. The National Survey of America¡¯s Families (NSAF) is a notable

exception. We use data from the third round of the survey, conducted in 2002. The NSAF

surveyed approximately 40,000 households, oversampling the low-income population. In

addition to eliciting information about living arrangements, work, earnings, income, and

program participation, the NSAF asked respondents about their expenditures in three key

areas: health care, child care, and housing.

Using these data, we assess how family expenditures in these three areas vary by

family type, income, and work status. We also compare estimates of these expenditures

from the NSAF to those from other data sources. Finally, we incorporate information on

family spending on other items such as food and clothing drawn from other data sources

to present a more comprehensive picture on expenses for low-income families.

Initially, we assess the extent to which family incomes are in line with expenses

for low-income families, distinguishing between families based on work status. Then, we

focus on low-income families with at least one full-time, full-year worker for several

reasons: these families make up the majority of all low-income families with children,

they have low incomes despite making a strong commitment to the labor market, and

they are becoming a greater concern for policymakers as fewer families turn to public

assistance for support and instead join the ranks of the working poor. Focusing on

working low-income families we can address questions such as: Are low-income working

single parent households spending a greater share of their incomes on child care than

two-parent households? Do low-income households with full-time, full-year workers

spend a greater share of their incomes on housing than middle-income families? Are

working families with young children or working families headed by immigrants more

likely to have expenses that are higher than their incomes than other families? These

comparisons will help us understand how much of their incomes different types of lowincome families are spending on health care, child care, and housing, and allow us to

assess how much income these families have left to meet their other expenses.

Overall, we find that low-income working families with at least one full-time,

full-year worker fare better than one might expect in 2001, thanks to their work effort,

earned income, and a generous refundable Earned Income Tax Credit, but low-income

families without a full-time, full-year worker do not appear to have enough income to

cover their basic expenses.

Defining Low-Income Families by Work Status

Our research focuses on families with children under age 18 headed by nonelderly

individuals. For the purposes of this study, we focus on families with incomes below 200

2

percent of the federal poverty level (FPL). Setting the low-income threshold comfortably

above the official poverty level allows us to capture a large number of families with

children that may be experiencing many hardships and are struggling to balance work and

family responsibilities. 1 In addition to focusing on low-income families, we also compare

low-income families with middle-income families (those with incomes between two and

three times the FPL).

Rather than using the official definitions of ¡°income¡± and poverty thresholds, we

used modified definitions that better capture the resources and needs of low-income

families. Most published work and federal statistics define income as gross money

receipts including earnings, unearned income such as interest, and cash transfers, and

excluding taxes and in-kind transfers. 2 Gross income, however, does not fully capture the

resources available to low-income families. Working families must pay payroll taxes;

conversely, they may receive substantial tax credits. In addition, low-income families

may receive near-cash assistance through the Food Stamp Program, which is considered

an in-kind transfer. Consequently, we discuss net income, which is gross income adjusted

for federal and payroll tax liabilities (including negative liabilities, or rebates, due to

refundable credits) and the reported cash value of food stamps.

Poverty thresholds are based on the number and ages of individuals living in the

family. The family unit we are trying to capture is the group of individuals who can be

relied on to help each other on a daily basis, those who share resources and can be

1

There is considerable debate about how well the official poverty measure captures a family¡¯s needs. For more

information see Ruggles (1990) and National Research Council (1995).

2

Gross income refers throughout to the sum of all money income received in the preceding calendar year.

Sources of income include money wages or salary; net income from self-employment; Social Security; Supplemental

Security Income; public assistance or welfare payments; interest and dividends, income from estates or trusts, net rental

income, veterans payments, unemployment insurance benefits, or worker¡¯s compensation; pensions; alimony or child

support; regular contributions from persons not living in the household; and other periodic income. Amounts that are

reported from the receipt of vouchers or coupons from the welfare office to pay for special expenses and food stamps

are not included in the calculation of gross income.

3

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download