Poverty Level Versus the Living Income Standard

We hear about “the poverty level.” What is it and what does it mean?

This is the standard we use to measure who in America is officially financially “poor.” The government uses this standard to determine who qualifies for a variety of “means-tested” federal benefit programs, such as Medicaid, food stamps, Work First welfare checks, and many others. For some programs, recipients must be at poverty level or below. For some, you can earn up to 200% of poverty level or more and receive benefits.

In 1956 by the federal Office of Economic Opportunity adopted the poverty level measure as a statistical tool. An employee of the Social Security Administration, Mollie Orshansky, developed it based on the “economy food plan,” the cheapest of four family food plans devised by the Department of Agriculture. It was then assumed that the average family spent about a third of its after-tax income on food. So, Orshansky multiplied the economy food plan by a factor of three to estimate a budget under which a family could not live. This was not intended to measure an adequate income, but the baseline under which a family could not economically sustain itself.

By 1969 the federal government adopted this poverty measure as its official definition of poverty—since there was no other available gauge. Unfortunately, we now use this rate as a proportion of pre-tax income, not as it was intended. For that reason and others, the poverty level is severely outdated and inaccurate. Those up to 200-300% of federal poverty level are often still unable to meet basic household expenses.

How is the Living Income Standard different from the federal poverty level?

The Living Income Standard is a bare-bones budget indicating how much average families in North Carolina must have to meet their basic needs. It covers seven basic items: housing and utilities; food; health care; transportation; miscellaneous expenses like clothing and cleaning products; and taxes. It does not include: money to be put away for savings; consumer loans like car or lending company or mortgage loans; meals out, entertainment, birthday presents, videos, etc. Therefore, the Living Income Standard is still a very conservative, low indicator of actual cost for a frugal standard of living.

The Living Income Standard is a more realistic gauge than the federal poverty level for the family earnings needed to avoid actual, functional poverty. It is an income level below which a family would need public benefits or private financial assistance to pay bills for essentials.

That is, the LIS is now what the federal poverty level was intended to be, but never truly was—an approximation of the lowest income it takes to make a family economically “self-sufficient.”

While the LIS is two to three times higher than the federal poverty level, it is not a level that allows for savings for college or retirement, for buying a home, or for many kinds of similar investments most families wish to make. Still, as a baseline for deciding on what should be a national or state minimum wage, and for determining means-tested public benefits, it is far accurate than and preferable to the federal poverty level.

Federal poverty level for a family of four: $17,960/year

NC Rural LIS for a family of four: $36,216/year (or, 221% of federal poverty level)

NC Urban LIS for a family of four: $39,672/year (or, 202% of federal poverty level)