Staying in the Black, Slipping into the Red
What does it really mean to have a social safety net organized around the principle that, if you work you shouldn't be poor? The American poverty line is neither an absolute measure of what it takes to survive-an estimate of what a basic "market basket" of necessities costs-nor a relative measure, like poverty thresholds in Europe that identify households falling below some percentage of the median income; the figure in the European Union is 60 percent. Instead, it is based on 1950s surveys of the cost of a minimally nutritious diet on an "emergency" or short-term basis (which assumed that a family consumed powdered milk and no fresh vegetables), multiplied by three (at that time, the average family spent a third of its income on food). Since the poverty threshold was set in the 1960s based on these calculations, the dollar amount has simply been adjusted for inflation.
Because of the poverty line's odd origins, no one is quite sure what "poor" really means in America, and, perhaps for that reason, hardly anyone likes the official measure. Some on the political right, for example, charge that the threshold is way too high-Robert Rector of the Heritage Foundation argues that it overestimates poverty because few poor Americans truly go without food, most have air conditioners and cable, half have personal computers, and a third even have fancy TVs. "For most people, the word 'poverty' suggests near destitution: an inability to provide nutritious food, clothing, and reasonable shelter for one's family. However, only a small number of the 46.2 million persons classified as 'poor' by the Census Bureau fit that definition," he writes.This is not mere punditry: surveys show that the poor do report possessions that many Americans-especially those of a previous generation-would deem luxuries. Because of this, some economists have called for a new poverty measure based on consumption, not income, arguing that it does the best job of identifying the neediest Americans.
In contrast, those on the political left often complain that the poverty line is much too low-little more than a back-of-the envelope, midcentury calculation based on national patterns of consumption that no longer hold; Americans now spend only about a sixth of their income on food, for example, but more on child care and medical costs than they once did. At this writing, the poverty line for a family of four is just under $24,000 in income, or about $2,000 a month. Critics in this camp ask, is there any place in America where a family of four can actually make ends meet on that amount? Columbia University's National Center for Children in Poverty estimates that, on average, a family would need an income of about twice the poverty level to truly get by. Ordinary Americans seem to side with the Columbia University researchers. In 2007, Gallup pollsters asked Americans from across the country: "What is the smallest amount of yearly income a family of four would need to get along in your local community?" The median response was $45,000, with a mean above $50,000.
The EITC was designed to bring a minimum-wage worker and his or her family above the official poverty line. The controversy over the poverty line raises the question of whether this is a worthy goal. Some might argue that, if the working poor have Internet and cable TV, supplementing their incomes with a cash transfer from the government is not an appropriate policy objective. Others might contend that, if the working poor are willing to play by the rules-stay employed-it is unjust, even immoral, not to ensure that they have the wherewithal to provide their children with a minimally decent life, as Americans define it. Indeed, for those meeting this fundamental requirement of the American social contract, just getting by may not be enough; those in this camp might argue that society should ensure that they have the real possibility to reach for more.
Accordingly, this chapter is devoted to examining the finances of working-poor and near-poor households who claim the EITC. At present, one minimum-wage job will provide an income of $14,500 a year, provided the work is full time and full year. The EITC and other tax credits fill the gap between that figure and the poverty threshold. Here we ask which of the two views of the poverty line is correct. Are people below the threshold truly struggling, or are they blowing money on big-screen TVs and cable packages? We'll find that the answer isn't one or the other, but both.
Our logic in addressing this question at the start of the book is simple: if we want to understand the real impact of the EITC, and whether it is worth the cost to taxpayers, getting a detailed look at household budgets is a critical first step. But, as we've indicated, the ultimate question this chapter raises is much larger: What bundle of goods and services is "enough" for those on the front lines of this revolutionary new approach to alleviating poverty, parents who are working but poor? Is it merely about financial need, or should our standard for what is enough be based on American notions of what workers "deserve"? In short, given the fact that these household heads all play by the rules-working, many full time and full year-do they need the EITC, and are they worthy of it?
We devote a later chapter (chapter 3) to comparing the new work-based safety net to the old welfare entitlement system that existed prior to the 1996 reforms, and to the time-limited welfare system that remains. Thus we will not engage in a full discussion of those differences here. Note, however, that the old system, which entitled a family to a certain level of resources based on their need, never came close to pulling families above the poverty line. Today, not one state in our nation offers enough in TANF benefits to raise a family much above even half of the official poverty threshold; in fact, in the majority of states, TANF benefits are limited to less than a third of the poverty line, although TANF beneficiaries usually are also able to claim SNAP (formerly known as food stamps) and Medicaid. Nonetheless, the monthly TANF benefit for a family of three won't even pay the rent: it is less than the cost of a modest two-bedroom apartment in any state, and, in twenty-six states it is not even half of that cost.This shortfall is meaningful given the fact that nationally only a quarter of eligible families get any form of subsidized housing, and families with substantial assets are barred from the welfare rolls.
Clearly, what remains of the traditional need-based safety net is not-and never was-truly about helping families meet all of their needs. Yet few politicians worry in public, and perhaps few even worry in private, that TANF benefits are too low. What standard of living, then, did Bill Clinton envision ensuring when he proposed a massive expansion of the EITC so that working Americans-at least those with kids-would not be poor? Was it bare-bones survival or something more-some notion of a "decent" standard of living that exceeded subsistence? The narratives we present in this chapter raise the question of what kind of reward American workers ought to get from their labor.
We first turn to Ashlee Reed, whose household financial situation is quite typical of that of other households in our study. Ashlee grew up in the South Boston housing projects watching her mother struggle financially while raising three kids on her own. A high school dropout, Ashlee's mom had to take whatever work she could find. Certification as a home health aide translated into long hours taking care of the elderly for little more than minimum wage. Perhaps as a result, she frequently lectured Ashlee and her siblings about the importance of education in the hopes that her children might rise above bottom-of-the-barrel jobs like hers and escape "Southie," the troubled neighborhood in which they lived. Ashlee bought into this message wholeheartedly; she excelled in high school and took out loans so that she could go to college. Four years later, she left with her bachelor of arts degree in hand, becoming the only college graduate in her family.
But life has fallen short of the comfortable living promised by her mother's stay-in-school mantra. Now, seven years after graduation, this twenty-nine-year-old white mother lives with her boyfriend, Adrian-who used to work as a cook in her college cafeteria-and their three young children on a run-down block that's just a stone's throw from the one that she was raised on. She is still saddled with $25,000 in educational debt, which she chips away at bit by bit. Because of the slack job market for teachers, she considered herself lucky when she landed a job at Head Start, earning $532 in gross wages per week, or $357 in take-home pay, during the forty-four-week school year. But the job hasn't left her much better off than her mother.
We first meet this family of five in their small, two-bedroom apartment directly across from a convenience store on a busy street in Dorchester. This mostly black neighborhood borders South Boston, the largely white enclave to the east where Ashlee was raised. Inside the apartment, it is dark; the living room is crowded with outdated but carefully preserved furniture, and a washing machine sits prominently in the kitchen, taking up too much space. Though it's cramped here, order reigns; the only clutter visible is an overflowing pile of bills on the desk in the living room.
Ashlee has a housing choice voucher-a program known colloquially as Section 8, which limits her rent to roughly 30 percent of her income.Without it, she would need to devote nearly all of her take-home pay to rent this modest apartment.During the months that she is employed-all but eight weeks during the summer-her share of the rent is $575 (the government pays the rest). And, in this unit, the rent includes utilities, a lucky break. Years ago, Ashlee applied for a modification to her housing voucher, which would have entitled her to a three-bedroom apartment so that the three kids wouldn't have to all share a room, but she has heard nothing from the Boston Housing Authority about that request. She needs to be close to work-she purchased a car only recently-so Ashlee has ended up in Dorchester, a step down, not up, from Southie. She worries about raising her children here: the block is home to a bar that is open all day, and Ashlee says the street is full of "yelling and broken bottles."
Head Start teachers don't command high wages, but the job does offer some critical perks for this working mother of three. While she must leave her toddler with her boyfriend's mother while she works, she can bring her two older children with her. Though the two kids are not technically eligible for the program (she makes too much money to qualify), Head Start charges her only $300 per month for both children. Elsewhere, she might easily pay three or four times that amount. Another perk is the schedule, which allows her to be home with the kids after school. She firmly believes that "no matter what, my kids have to come first." Despite the nice fit between her family responsibilities and her work schedule, running after a dozen or so preschoolers all day can be tiring, and, for the hard work involved in managing her classroom, she finds the compensation wanting. In an average month, her paychecks show gross earnings of $2,288, although she notes that payroll taxes, deductions for her share of her health care premium, and intentional overwithholding-a decision to "save" made when both she and Adrian were working-bring that amount down considerably.
Employment entails a host of expenses-especially child care and transportation. A busy highway separates Ashlee from her job. Now that she has a car, she drives to work, piloting a dark blue Dodge Caravan older than her children's ages combined-five-year-old Warren, four-year-old Mallory, and three-year-old Johnny. She's proud that this "clunker" is paid off, but it isn't cheap to insure or maintain: in a typical month, she estimates that she pays $401 for transportation, between car insurance, gas, registration, and routine maintenance or the occasional parking ticket. That's nearly a third of her take-home pay.
Ashlee's financial struggles are particularly acute at the moment. Her boyfriend, thirty-three-year-old Adrian, can't pay anything toward the household expenses. After six years of steady work as a cook at her alma mater, he was laid off just before Christmas, along with all of his coworkers, when the college chose a rival food-service provider. By the time of our first in-depth conversation, Adrian's unemployment benefits have run out. And Ashlee is facing another financial hit: it's late June, and she has just been laid off from her job, as she is every summer. She, along with thousands of Head Start teachers across the country, applies for unemployment during the summer months, but unemployment insurance covers only a portion of her lost wages; in any case, the first check takes about four weeks to arrive. While waiting for that check, Ashlee copes by using the only safety net that she has available-credit cards-to pay the bills.
For Ashlee and so many others working lower-wage jobs, there really is no average month. Instead, their financial lives are boom and bust. During the "bust," debt accrual is common. Most aspire to save, but the barriers to saving are high; unexpected financial upheavals quickly eat away at one's savings. During the forty-four weeks that Head Start is in session, Ashlee, Adrian, and the kids can count on at least one steady paycheck. But each summer Ashlee's income takes a nosedive. And she has no cheap source of child care available to make a summer job worth her while. Most years, Ashlee manages to limp along until February, tax refund time. In February, when her tax refund arrives, she can catch up on bills that may have been overdue for months, pay off some of her longer-term debt, and, in good years, save for the summer financial crunch.
We begin by considering Ashlee's financial situation in an "average" month, as if her income and expenses stayed steady throughout the year. In the typical month, Ashlee's expenses exceed her wages from her job. With monthly expenses totaling $2,856-this includes only minimum payments on the credit cards and on her student loans-and average take-home pay of under $1,600, the family is sliding into debt even during the months that she claims her full salary, as long as Adrian is unable to contribute.The weighty load of Ashlee's credit card debt is testimony that she's relied on credit as a safety net in the past.
Ashlee lives as many lower-wage workers do, under a cloud of debt that grows rather than shrinks over time: currently, she owes five credit card companies a total of $4,080. Each month, she tries to make at least the minimum payment on these cards plus a few dollars more, but, with interest rates of more than 20 percent (and one as high as 30 percent), her progress on paying down the balances is slow. Lately, she feels a sense of accomplishment in those months when she manages not to increase the amount she owes. On top of the credit cards, her student loan payment is $360 a month. She tries not to think about how long it will take to pay off the $25,000 that remains. Since Adrian has been unemployed, Ashlee has skipped these payments in order to provide for the family's basic needs.
Last February, Ashlee got a refund check from H&R Block totaling $4,704-more than three times the amount that she brings home in an average month. Ashlee keenly remembers the excitement she felt when she collected that check, walking it straight to the bank. By the time that the refund was in hand, she had spent months planning how she would spend it. She had fallen behind on her student loan during the prior summer and had decided to put that particular debt at the top of the list. Ashlee typically prioritizes her student loan above her credit cards because, "once you go so long without paying, they can default you." Defaulting on a federal student loan triggers garnishment of one's tax refund, a risk she doesn't feel prepared to take: "I didn't want to get there," she says.
After she had gotten up to date on that loan, the remaining $3,204 from the refund allowed Ashlee to pay down some of the principal on her credit cards, which she had also accrued the prior summer, and to catch up on the overdue cable and phone bills. Now, just as she faces another layoff, the savings from her tax refund have nearly run dry. Thus, this year, Ashlee made no progress toward her longer-term goal:"I try to save [a lot of my refund]. My goal usually, even though I don't ever make it, is to have enough money saved up for the summer for when I go onto unemployment, because . . . it takes like four weeks [to get my first unemployment check]. That's four weeks without pay if I don't have anything saved up from when I was working. So I usually have that goal, which is to at least have enough to get me through that [month without any cash coming in]." For Ashlee, having that cushion in savings would decrease her reliance on credit cards and alleviate stress. Given the seasonal ups and downs in Ashlee's financial situation, especially since Adrian lost his job, it is difficult to formulate, much less stick to, a budget.
All of the families we spoke with live on incomes considerably below the American median. All face the pressures of raising kids in a city with high living costs while juggling work and family demands. Where do they work and how much are they earning? How do they choose to allocate their limited resources? When there is money left over after the bills are paid, where is the surplus going? How important is the large infusion of cash from the EITC?
Our goal in this chapter is to trace the flow of money in lower-wage working households. As indicated above, we first present average monthly expense and income figures calculated from detailed financial descriptions of expenditures over the prior year. However, as Ashlee Reed's story shows, averages can be misleading. So we go beyond these figures to describe the ups and downs families experience over the course of the year. Few of our families enjoy predictable incomes and expenditures. Job loss and fluctuations in hours are common, as are unexpected spikes in expenses. Uncertainty is not the exception; it is the rule.
We asked parents to recount their finances in great details. We tried to account for every dollar that came in, every dollar they spent, and every outstanding IOU. Although it might seem inconceivable to some middle-class readers, many parents were able to provide us with this detailed accounting of their financial lives without much reference to documentation beyond an occasional glance at a credit card statement or utility bill. The strength of the financial recall of the poor puts the spotlight on one potential benefit of living under the constraints of a tight budget. While social scientists have found that being impoverished can be mentally taxing-focusing so much on how to meet immediate needs can create a scarcity of attention for other tasks, like long-term financial planning-the flip side of this coin may be a facility with mental account keeping of the monthly cash flow that would floor many middle-class Americans.
Ordinary Working People
Our families are among the more fortunate of America's lower-income households-they have worked enough during the past year to warrant sizable tax credit refunds from the government. These workers are employed in a variety of jobs that keep the local economy running. But these jobs often require few educational credentials and provide limited monetary rewards.
Some work in restaurants, prepping food in the kitchen or taking orders from sit-down customers. Others serve as receptionists and file clerks. Like Ashlee Reed, some take care of children, while others help the sick and disabled elderly in roles as home health aides, certified nurse's assistants, and medical technicians. In short, these are the ordinary working people who feed the rest of us, ring up our orders and hand over our change, sort our paperwork, watch our kids, care for our older relatives or us when we're sick, and provide many of the other services that are a daily backdrop to our lives.
Table 1 shows the range of jobs held by the parents we interviewed. Almost all work in some type of service occupation. About half hold jobs in offices, restaurants, or child care centers. Most of the administrative workers are support staff, such as receptionists or clerical workers. Almost all of those in education work as preschool teachers, as public school teacher's assistants, or in day care centers.
Among these working-poor households we heard a recurring wish for better employment. All desire higher pay and benefits-vacation time, paid sick leave, and a retirement plan. More than that, they want stable hours, job security, some flexibility, full-time hours, and greater respect from employers and their clientele. Mostly, though, they just want steady jobs with a paycheck they can count on-and this was in 2007, before they felt the effects of the Great Recession. One in ten had experienced involuntary unemployment at some point during the prior year. Others, like Ashlee, had boyfriends, their children's fathers, or kin who lost jobs as well. With network support often vital to their financial survival, families felt the pinch of these job losses too.
The service workers we spoke with complained the most about the lack of predictability in their schedules. Rose Alvarez, an immigrant from El Salvador who is raising two teens with limited help from their father, tries hard to put in forty hours a week as a home health aide. Even when she has a full client load, she tries to pick up extra shifts when other aides call in sick. Yet clients come and go, so Rose's hours can change suddenly and dramatically. She explained, "Sometimes I work only five hours a day, so that's no good. But the reason is because when the people get more sick, they get put in a nursing home. Some of them, they go and pass away. . . . Sometimes I lost ten hours in one week." Rose tries to work as much as she can, but she ultimately has limited control over her schedule. Others have schedules that are more predictable, but the work is seasonal. Some have jobs that depend on favorable weather conditions or a strong economy, such as construction work and house painting. These jobs made financial planning a challenge.
It is an article of faith for most of these families that work will lead to upward mobility. With the arrival of tax season, workers can point to their refunds as evidence that it's worth sticking it out at their jobs. Most insist that their economic situations will improve someday, even if they are not sure how. Some simply believe that, if they stay at a given job long enough, they'll eventually get a raise or an increase in hours. Others predict steady movement up the job ladder-from a nurse's assistant to a medical technician to a registered nurse, for example-imagining they'll somehow manage to acquire the necessary certifications to claim the better-paying occupations they are aspiring to. Some have little hope for mobility in their current occupations but believe that they will manage to find a better job sooner or later. These low-wage employees have not given up on the American Dream.
The Balance Sheet
We interviewed parents who claimed a relatively large earned income tax credit (EITC), which meant they had worked a considerable number of hours in the prior year. Ashlee Reed, whom we met at the beginning of this chapter, had earned approximately $27,500 annually in gross income, placing her above the mean in our sample-the families we studied earned roughly $22,000 on average. But nearly a quarter (24 percent) earned less than $15,000 annually.
Table 2 shows income by marital status for parents in the study. Because the EITC has somewhat higher eligibility thresholds for married couples, the single parents we spoke with have lower incomes than the married couples do on average. The typical married couple in our study reports about $29,000 in total income, while the unmarried parents have about $19,000. A few families report somewhat higher incomes than EITC eligibility thresholds should allow. Often these are cohabiters where one partner claims the kids and files as "head of household," just as the IRS forms direct (there is no separate filing status for cohabiters). When Ashlee and Adrian file their taxes, for example, Adrian claims one of their children while Ashlee claims the other two, each filing separately because they are unmarried. Others do not report all of their income to the IRS but were willing to disclose it to us. Income that goes unreported to the IRS is not common, and it isn't usually substantial.
As described in the introductory chapter, families' incomes routinely fall short of their expenses. To get by despite this shortfall in earned income, they rely on other sources of support-ex-partners who pay child support, kin and romantic partners who contribute, and government support such as TANF or unemployment insurance. One in six (17 percent) of the households in our study receives child support through the formal system; these payments augment the average household income by an average of $230 for those who receive it. However, those receiving informal child support get even more: $360 on average each month. Some count on assistance from friends and family during lean months-one in five families (20 percent) get financial help from kin or romantic partners, gleaning $194 per month on average. Only a small number of families claimed anything in the past year from cash welfare, TANF, or other programs paying cash benefits, such as Supplemental Security Income (SSI). Many, however, claimed some benefits from SNAP. Taken together, TANF, SSI, and SNAP (when counted as cash) add an average of $271 monthly. Table 3 summarizes the effect of these contributions and government benefits on the typical monthly budget.
[Table 3 about here]
As the next chapter will show, tax time is long anticipated and, for many, the only time during the year when income is sure to exceed expenses. Unlike the legions of upper- and middle-class families across America who dread filing their taxes (and who may wait until the April 15 deadline), lower-wage earners as a group tend to file as early as possible, at the end of January or early February when their W-2s come in the mail.
These working families say tax season feels like "hitting the lottery." It is no wonder. Their refund checks include the earned income tax credit, other federal tax credits, and any taxes overpaid throughout the year (either from their additional withholding or through employers' overestimation of owed taxes), minus any taxes owed. On average, this federal refund check from the US Treasury, taken together with their state refund check, which may contain additional state and local tax credits, boosts the family budget by $4,686 for parents in our study. It is difficult to overstate the importance of tax time in their financial lives. The average refund is equivalent to nearly three months of earnings. Recall that the modern EITC was originally designed to allow a family of three with a minimum-wage, full-time, full-year job to escape poverty, and, for most of the families we spoke to, it does.However, these workers also drew on the extensive in-kind safety net that bolsters needy families' resources: SNAP; the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); housing assistance of various sorts; and public health insurance such as MassHealth.
In Massachusetts, SNAP is available to families with children who have incomes under 200 percent of the poverty line. This means that a single parent with two children who has $2,767 or less in monthly income could receive some benefits from the program. In 2006, our study's tax year, a family of three would have been eligible for a maximum $399 per month in food stamps if they had no earnings. Each dollar earned reduces the maximum benefit by 25 cents. Because eligibility for this program continues to be based on need, many of the households in our study qualified for a modest amount from SNAP.
WIC helps pregnant and nursing women and children under five to obtain milk, eggs, baby formula, cereal, and other nutritious foods. The income limit for this program is 185 percent of the poverty line. This program offers in-kind benefits only, but the cash value of the monthly food package can total as much as $100 per month if two members of the household qualify.
Housing subsidies generally come in one of two forms, public housing or housing choice ("Section 8") vouchers. These are not entitlements; they serve only a small fraction of those who are eligible. In many jurisdictions, wait lists for the voucher program are closed or are opened for only a brief period of time when vouchers become available. Qualified applicants are then generally chosen by lottery, though especially needy households, such as those that are homeless, sometimes receive priority. Families pay a portion of their income (generally 30 percent after certain deductions) for rent, and the federal government picks up the rest. Housing choice vouchers can be used to rent market-rate units, providing the landlord is willing to participate in the program, the rent isn't too high, and the unit can pass the housing authority's inspection.
When we launched our study, Massachusetts was the only state in the country with a health insurance requirement (paving the way for the subsequent federal overhaul of the health insurance system). MassHealth, instituted in 2007, is free of charge to children under 300 percent and adults under 133 percent of the poverty line. Other lower-income residents can buy MassHealth insurance at discounted rates.Consequently, many in our study had access to relatively affordable health insurance.
Some families we spoke with reported that someone in their household had drawn income from SSI. This is a federal disability program that offers benefits to disabled adults and their minor children who do not have the work history to qualify for SSDI (Social Security Disability Insurance) or workers' compensation-or to children with disabilities serious enough to qualify them for SSI had they been adults.State offices determine eligibility for disability payments, but the federal government pays for most of the benefits (approximately one-quarter of recipients nationwide-including those in Massachusetts-live in a state that offers an additional supplement). To be eligible, an adult must be deemed so physically or mentally impaired as to be unable to work for at least the next twelve months. Earnings below $300 a month are seen as one form of evidence of the inability to work, and there is also a $2,000 asset limit (for an individual). The federal benefit rate in 2006, the year just prior to our study, was $603 per month for an individual claimant. For children to qualify, they must live in a low-income household and have "marked and severe functional limitations" expected to last for at least a year.
Figure 2 shows the number of families in our study who report deriving income from each of these government programs. In this sample of working families, with incomes ranging from well below to significantly above the poverty line, some were eligible for an array of government assistance programs above and beyond the EITC, but others were not, at least at the time of the study. While fifty-one families (44 percent) said they had used cash welfare (AFDC or TANF) at some point in the past, only nine families (8 percent) told us that they had received any cash welfare in the last year. In contrast, forty-five families (39 percent) had received SNAP, and a majority, seventy-three families (64 percent), got some form of housing assistance-a rate that is more than two times the national average among eligible households. In twenty-five families (22 percent), someone received SSI. Thirty-three households (29 percent) drew benefits from the WIC program. Eight families (7 percent) claimed unemployment insurance for a portion of the year. As indicated above, because our families lived in Massachusetts, in most-seventy-nine-households (69 percent) at least someone was covered by government-subsidized health insurance (usually MassHealth).
These working families are not dependents in the colloquial sense, but they are nonetheless recipients of substantial government assistance, even beyond the EITC. Figure 3 shows the number of programs families are currently claiming in addition to the EITC. Only sixteen of our families (14 percent) receive the EITC alone, while twenty-nine families (47 percent) draw on three or more government support programs in addition to tax credits. Together, figures 2 and 3 show that the government safety net for the working poor extends well beyond the EITC, especially in the city of Boston, where housing costs are unusually high and housing subsidies are in greater supply than elsewhere.
The Expense Side of the Ledger
Despite these various sources of government assistance, expenses exceed income in the typical month for the families in our study (see table 4). The average household spends roughly six in ten dollars (59 percent) of their earnings for just three items: housing, food, and transportation. Note that even after taking into account housing subsidies and SNAP benefits, families typically spend nearly half (45 percent) of their wages just on housing and food.
Spending among the families in our sample is similar to that of other lower-income families nationwide. Our analysis of the Bureau of Labor Statistics' 2005 Consumer Expenditure Survey, when restricted to those respondents at or below 300 percent of the poverty line, showed that a household unit of three spent a monthly average of $381 on food at home (versus $398 for our sample), $90 on buying prepared food outside the home ($82 for our sample), $73 on clothing ($123 for our sample), $1,102 on housing expenses ($735 for our sample), $129 on medical costs ($68 in our sample), and $395 on transportation ($355 in our sample). Thus the expenses among our sample of families are broadly representative of the allocations among disadvantaged families across the country.
As we've already noted, housing costs are higher than average in Boston and contribute heavily to the city's dubious distinction of being "one of the most expensive places to live in the U.S.," as noted in Forbes. On average, our families earn $1,887 each month, while an average two-bedroom apartment in Greater Boston costs $1,345 per month, and a three-bedroom unit averages $1,609. So, how do they manage? Very few-27 percent-are paying the full cost of the housing that they occupy. While 64 percent get some form of subsidy another 11 percent are doubled up, living with family or friends. Housing expenses consume approximately one-quarter of the typical family budget; this is substantial, but it is a fraction of what the figure would be if all paid market rent. The reason why so many Boston-area lower-income families have subsidies is that those without one are often priced out of Boston altogether. The Boston Housing Authority, which administers most subsidies, estimates that they provide a subsidy to approximately 10 percent of all city residents.
In contrast to renters, the home owners among our families pay a premium for their stake in the American dream.On average, they devote $2,101 per month toward their housing costs-including the mortgage, insurance, and taxes-considerably higher (by more than a thousand dollars) than renters who pay the full market price. Subsidized renters pay the least for their housing expenses, averaging under $400. Adding together housing and utilities, home owners pay about twice what unsubsidized renters pay and five times what those with subsidized housing must lay out each month.
After housing costs, food takes the second-largest bite out of a typical family's budget-$512, or 19 percent on average (see table 4). Tamara Bishop-a thirty-three-year-old black single mother who works as an assistant preschool teacher, gets $70 from SNAP each month to help feed her four children-two teenage daughters and two sons still in grade school. But that benefit buys less than a week's worth of groceries, leaving her to cover the rest of the family's food purchases with cash: "You know, my kids, like they like to eat! I cook every day . . . and I don't even buy . . . things that they want, like snacks and stuff. I buy 'food food.' Sometime, like, especially the end of the month, it's like, like last month there was like nothing in the refrigerator; I mean nothing. I had to like borrow the money [from my mom]." Tamara usually spends $250 cash on groceries each month in addition to SNAP.
Because the working poor and near-poor often live with financial uncertainty, it was not uncommon for us to hear stories of families buying in bulk at discount stores and filling pantries and deep freezers, especially at tax time. These stockpiles help to ensure that food won't run short when money gets tight. Brenda Hutchinson, a thirty-eight-year-old, married, white school lunch aide, explains that, when the tax refund check comes, she takes her two daughters-ages four and eleven-to BJ's Warehouse, a wholesale chain that sells groceries and other items in bulk. This year, they spent over $400 on meat, which she stores in her mother's stand-alone freezer. They also bought large quantities of pizza bagels and cases of soup. She tells us, "I just keep them like stocked up so you don't have to worry about running out of food, you know?" That families use their EITC money in this way reflects the reality that these parents often have too little income to make it through the month, even with SNAP.
Mariella Ambrosini, a white fifty-seven-year-old whose daughters, ages fifteen, twenty, and twenty-three, all live at home, has severe emphysema and relies on her husband's seasonal earnings as a construction foreman as well as her SSI check to get by. When visiting Mariella in her third-floor walkup in East Boston, we immediately notice that just inside the door is a large metal shelf overflowing with pasta, canned goods, chips, and cereal. She tells us, "My big expense is food, my refrigerator gotta be full all the time. Otherwise I get very depressed." For Mariella and many others, food represents security, and the state of Mariella's pantry serves as an important barometer of how she is faring financially.
Transportation consumes $388 per month, or 14 percent of the typical family's monthly budget.About two-thirds of our families (63 percent) have cars and spend an average of $744 monthly on automobile-related expenses, including car loans, car insurance, gas, maintenance, excise fees, parking fees, and tickets (see table 4). In Boston, public transit is extensive, and more than four in ten families (43 percent) were entirely reliant on it when we spoke with them (including a few with cars that they could not afford to fix or insure). But buses and trains do not always run on time. And low-income neighborhoods in Boston are underserved by subway lines. Thus getting to work or to the store can mean navigating several bus routes, or riding a bus and then the subway.Using public transportation saves money but costs time-time parents can sometimes ill afford while juggling child care or multiple jobs.
Although our families live in Massachusetts and have access to MassHealth, they still report some medical expenses: $72, or 3 percent of total monthly income on average. As noted above, by virtue of their incomes, many qualify for free or subsidized health care coverage under MassHealth. For the 29 percent who pay something toward their health care, the expense is relatively small-$189 on average-probably because so many receive at least a partial subsidy.
In their study of spending practices of low-income single mothers, Edin and Lein found that, when money ran short at the end of the month, the phone bill was one obligation that families let slide-telephone service cost their households only about $30 on average in the mid-1990s, when they conducted their research. What is considered a household "necessity" clearly changes over time; now, a decade and a half later, phone costs have spiraled-averaging $102 among our families. Most (86 percent) have either a cell phone or a landline, and many (71 percent) have both. The cell phone bill is often a high priority because many are locked into one- or two-year contracts with their providers and can be assessed a hefty fee for late payments. Some have pay-as-you-go plans; while this option is relatively expensive for anyone who uses his or her phone very often, they pose no risk of broken contracts and potential late fees.
Child care and educational expenses consume $133 of the typical family's monthly budget.The fifty families with child care expenses (44 percent) pay only $191 each month on average, far below the market rate, because many have managed to secure subsidies. Yet for some, even the assistance they qualify for does not feel like enough. When administrative assistant Corine Samuels, forty-nine, black, and separated from her husband, took in her four-year-old granddaughter, Tamika, she did not anticipate the bite of her share of the child care bill: "They told me when I had custody of my granddaughter that . . . I wouldn't have to pay for child care; this year they told me I gotta pay child care. I have to pay $27.50 a week for her to go to child care. [The caseworker] told me, 'Oh, that ain't nothing!' It's . . . nothing if I had it. When you don't have it, it's something! If you don't have it, [even] $5 is a lot."
Clothing constituted $151 of the typical family's monthly budget. When it comes to shopping for themselves, many parents rely on discount stores such as Target, T.J.Maxx, and Marshalls, but usually only when they absolutely need to shop for something-an outfit for a job interview, a uniform for work, or sneakers when the old pair has holes. Occasionally, though, parents will treat themselves to an inexpensive item of clothing that they don't strictly need. Twenty-six-year-old Rita Ramirez, a Hispanic hairdresser and mother of two children, ages one and nine, whose boyfriend lives out of state, says, given how hard she works, she believes that she's earned the right to a few new $7 T-shirts or a $15 pair of flip-flops.
While adults can put off buying clothes for years, growing children often require new clothes-with chilly Boston winters and humid summers, most children require some new items each spring and fall. Usually, our parents scour the city for sales, supplement with hand-me-downs, and solicit their relatives for clothing as Christmas and birthday gifts.
Another $201 each month goes tohair care, toiletries, and cleaning supplies. This includes trips to the laundromat; families who don't have washing machines at home spend $60 each month on average to wash and dry their clothes. Buying or renting furniture or appliances isn't uncommon; 14 percent of families made a furniture purchase or paid rent on their furniture in the last year, while another 12 percent are making payments on household appliances, such as washers, dryers, refrigerators, or air conditioners.
Though expenses generally exceed incomes, families still devote 13 percent of their budgets to nonessentials (see table 4)-the rare personal indulgence, a drink at happy hour with coworkers, or a treat for the kids, usually no more than a family trip to the arcade. For the most part, this spending is done without apology-after all, they emphasize, for all their struggles, they are working families, and being a worker gives one the right to spend on a few special extras every now and then. In keeping with this philosophy, more than eight in ten (84 percent) say they spend something on entertainment, mostly for DVDs, the occasional excursion to a family reunion, or a trip to the movie theater. In addition, half pay for Internet service; these parents typically justify the $37 average monthly cost by explaining that their children need the Internet for homework (although many may also use it for entertainment or to keep in touch with friends and family). Nearly three-quarters of all households have a cable television subscription, a quarter spend something on alcohol in a typical month, nearly a third buy cigarettes, and more than a third play the lottery. Almost all spend on other nonessentials as well: tithing to a church, purchasing pet food, buying gifts, or helping out needy family members or friends.
Debt plays a pivotal role in the financial lives of these families, and we devote chapter 5 to this subject. For the purpose of creating an average monthly snapshot of their budgets, we asked parents to talk in depth about which debts they pay regularly, which are more hit or miss, and which are ignored altogether. The typical household pays $173 monthly toward their outstanding debt, or 6 percent of their monthly expenditures (see table 4). Note that this does not include rent or regular monthly payments on big-ticket items like furniture, appliances, or cars, which are categorized separately as household expenses. The 38 percent of families who make credit card payments dedicate an average of $176 per month to these bills; just under a third of families are paying on other kinds of debt, usually medical bills or student loans.
Financial Ups and Downs
Averages mask important ebbs and flows in income and expenses. A few families with whom we spoke have a stable pattern of income and expenditure despite their lower earnings. Most, however, live financially precarious lives, without a substantial private safety net (like savings or access to significant financial assistance from kin), and are therefore sensitive to financial shocks-sudden shifts in income or expenses.
Many say they have almost come to expect that something will derail them financially at some point during the year. Jerry Morales lives with his wife, Tessa, their three children, ages five, seven, and fourteen, and his mother in a housing project in South Boston. This white thirty-two-year-old works two jobs-full time during the week in the mailroom at a community college and on the weekend as a truck driver for a bakery, a 2:00 a.m. shift delivering doughnuts. Sometimes he gets discouraged by how surprise expenses seem to crop up with such frequency. "My dream basically is to get a house and be settled financially, everything. That's all I ever wanted. No matter how much we try, there's always something that just kicks us in the butt." Jerry's wife Tessa recalls the year when they faced a fourfold financial nightmare. First, she lost her waitressing job. Then "My mom passed away. I just had [my youngest daughter]. Jerry got sick [and couldn't work]. So, it was a stressed year."
A car repair, a family member in need, or even something as small as a parking ticket can be the jolt that "kicks us in the butt" when a household is living paycheck to paycheck. Family income may likewise dip abruptly because of lost hours at work or a layoff. Some life events, like illness or pregnancy, increase expenses while decreasing one's ability to earn. In the face of a financial shock, families go without, borrow, skip bills, or turn to their credit cards. A generous tax credit in February can halt the downward spiral or-for those who save some of the refund-prevent a subsequent one.
Struggles with Government Support
By their own definition, these families have fulfilled their part of the American social contract: they work and take care of their children to the best of their ability. As chapter 3 will show, they disdain those who are dependent on welfare.Because they view themselves as upstanding citizens and taxpayers who contribute into the system, they believe that they are worthy of a little help from the government-a hand up-when times are tough. This doesn't mean that the help they believe that they deserve is always forthcoming. Despite the plethora of programs one might, in theory, be able to draw on, in their view assistance is often wanting or slow in coming.
Some complain about eligibility and benefits that are based on gross, rather than net, income. Tanya Salazar, a twenty-eight-year-old married black mother of three who range in age from five months to twelve years, works at a clothing factory. She complains, "This apartment['s rent] is based on my income. It's based on my gross, not my net. How can you base my living expenses on money I'm not going to see? Yeah, you know that's why they took my Section 8 away, because gross I was getting like $1,000 [every two weeks]. After taxes I was only getting seven-something. And then, when you just added up my expenses alone, yeah, I had change left over, but once you took the [Section 8] certificate, I'm paying $1,400 [in] rent. It just doesn't add up."
Talisha Watson, a black twenty-five-year-old who lives with her boyfriend, Daven, and her elementary school-aged daughter, Jasmine, recently lost her job as a medical coder. She shares a similar story.
I have one kid, and they [the welfare department] feel I was making enough money. I didn't feel like I was making enough money. I said, "Okay, you count gross pay. That is a lot. But let's talk about after taxes. . . ." I am paying health insurance . . . and then you have dental. . . . You have your 401k. . . . And God forbid if I work overtime. . . . The taxman get that back. I don't see that money. You know, so it's like . . . I should be able to splurge on something. . . . I work for this, but nooooo!
Talisha decries programs that take, rather than give, as earnings rise, and is even angrier about programs where eligibility abruptly ends once income exceeds a certain level. She echoes what is a key source of frustration for many: doing what's right-trying to better oneself through earnings-earns you a slap if not a shove out the door from "the system." Work ought to be rewarded, not punished, they insist. Ironically, the EITC also declines as earnings rise once families reach the phaseout range in benefits, but the way the total tax refund check is calculated is fairly mysterious to most. Further, the "refund" is adjusted for the ebbs and flows in earnings only once a year. Thus the declines in SNAP or one's housing subsidy are experienced as a "punishment" for working, while any eventual reduction in tax credits is not.
Nonetheless, the most common complaint is that most programs are built around the assumption of a steady income rather than on the ups and downs that are endemic to the financial lives of the working poor. Marissa Lopez is a thirty-one-year-old, Hispanic single mother of three, ages five, eleven, and thirteen. She is relatively well educated-she has completed some college course work and is certified as a medical assistant, so her wages are higher than those of most. The catch is that she has not been able to get a full-time job in her field. Instead she's worked for a temp agency for the past seven years, filling in at various hospitals and doctors' offices. It's hard to predict how long any given assignment will last or how many hours she'll get. And there are sometimes weeks, even months, between assignments. "Sometimes I'm able to get forty hours a week. Other times I'm lucky if I get eight hours a week," she explains. SNAP has added to, rather than eased, the ups and downs in income, because the benefits are based on the prior month's earnings. Worse still, each time she is deemed ineligible because of an unusually flush paycheck, she must apply again during the next lean month and then wait for her case to be approved, an often lengthy process. In her words: "My income is not always stable. So one month I could be eligible for food stamps and the next month I'm not eligible for food stamps." Marissa must be diligent in updating her caseworker, since failure to report a new job, or any substantial increase in hours or wages, can result in steep sanctions. In some states offenders are barred from future receipt of SNAP benefits.
Bitterness over "unfair treatment" can flow from these experiences. Luanna Fields, a white woman who smiles as she declines to tell us her age, is an education coordinator who is currently working on her master's degree at a local university. She lives with her husband, Colin, the grocery store manager she married a year ago, and her teenage son, Dustin, in a single-family home on a quiet, dead-end street in Malden, a lower-middle-class inner suburb north of Boston. Luanna and Colin have a rent-to-own agreement with their landlord.
The Fields ask us to arrive at eight o'clock on a Saturday morning so that Luanna can keep her promise to take an elderly friend shopping at 10:30 a.m. We move to the kitchen, which is spick-and-span, noting the nautical theme-the lighthouse knickknacks mingling with Colin's collection of wine bottle holders. We sit in the breakfast nook, which looks out over the neighbor's backyard, where Luanna shares strong opinions about the help she gets-and doesn't get-from the government. "I think that people like us that are the middle class [can't get anything from the government]. If you're really rich and you have all this kind of money, then you-I think that they make out somehow better [than us]. And then the lower class, it seems like even though they're all struggling, they get, you know, all those [benefits]. But the middle class, it just seems like we get stomped on. . . . Either you make it or you don't, you know. Trial and error." Until she married her husband, Luanna earned just enough to escape poverty, yet she views herself as part of the middle class-a group that she feels is left out, "stomped on," by the system.
Similarly, thirty-six-year-old Juana Vega, a married Hispanic mother to eleven-year-old Milo, works as a disability specialist at a local preschool and conveys her deep sense of frustration that, because they are doing the right thing (going to work, attempting to support themselves), her family is getting less than those who are less deserving:
Because we're like a working family, we're like in the middle of everything. Like people who, like my sister-in-law, they're poor by the eyes of the government, they get all this money-welfare-and they get fuel assistance and they get food stamps. And they don't work because it's easy that way. Why go to work and make [money on your own]-she's getting her gas paid. I'm not. I can't get my gas paid because I'm working, you know? And sometimes I feel like, all these people getting all this money without-by lying and doing nothing, and the people like me that live check by check. . . . I work so hard, I pay so much in taxes, and maybe it'd be easy if I lie [down] too and just-you know what? I'm gonna live on welfare, I stay home, watch TV all day and I get paid [by welfare], you know? This is a working family; let's give it a relief!
Juana's claims are far from accurate-welfare benefits get a family to only half of the poverty line even in an unusually generous state like Massachusetts, and they are subject to strict time limits and participation requirements (which don't allow one to "stay home, watch TV all day"). And, other than the sales tax imposed on certain purchases, Juana gets back more in her tax refund than she pays in. In fact, the EITC and other tax credits that families like Juana's receive are at least as generous as welfare is to those with no outside income. But this is beside the point. Poor or near-poor workers like Juana often see themselves as the beleaguered "middle class," stuck between those who are eligible for what they imagine are big handouts and those who can truly afford to go without such assistance.
Support from Family and Friends
People often turn to their families and friends for help when times get tough, as is true among those in our study. Since anthropologist Carol Stack's seminal 1974 ethnographic work All Our Kin, which showed how crucial kin were in poor families' daily struggles for economic survival, the accepted wisdom is that family and friends play a key role in lower-income people's lives, buffering them from financial hardship.But statistics actually show it is the more advantaged who draw the most resources from their networks. They are more likely than the poor to have friends and family with substantial assistance to offer.This does not mean that the kin support that lower-income families do draw on is unimportant. While it is true that such support seldom compensates for the large gap in resources between the poor and the better off-and almost never offers the leg up that families need to buy cars, make down payments on homes, or save for college or retirement-kin support is often vital for routine survival.
Kin don't usually offer a once-in-a-blue-moon handout when times get particularly tough. Many of our families are involved in ongoing reciprocal and one-way exchanges with family and friends. Being embedded in such a social network, however, comes with the risk that someone else's financial woes can quickly become one's own. Given the financial situations of the households we studied, they are only rarely the most well off in their networks; many are on the receiving end the majority of the time, garnering small loans of a few dollars here and there and, quite frequently, toys, clothes, meals, and special extras for their children. The $20 borrowed here and there to keep the lights on or the extra bag of groceries that appears at the doorstep can't usually make up for a significant shortfall of income, but it can ease stress for households with budgets that come up short. It is important to reiterate, however, that help from family and friends is generally neither asked for nor offered to cover outstanding debts. This ultimately limits the value of kin, who may help to prevent a family from falling further into material hardship but don't-or perhaps can't-aid families when they're trying to dig out from under pressing financial obligations. Debt limits families' abilities to build assets, especially purchasing a home, or to get good credit terms on other big-ticket items like cars, or even to rent an apartment in a more desirable neighborhood, because of the impact on credit scores.
Dominique Henderson is a twenty-three-year-old, single, black mother of a preschool-aged daughter and works as a teacher's aide at a local school; she relies on a variety of people who offer her financial help from time to time. When she needed to buy living room furniture, a friend was willing to put the purchases on her credit card with the promise that Dominique would pay her back at tax time. Dominique also wants to save for a home. She's opened a bank account with her brother where she can deposit savings toward this long-term goal; keeping the account in her brother's name makes withdrawing the money for other purposes more difficult-and this is the point. Her sister lets Dominique use her bus pass that the sister only rarely puts to use (she has a car) to help her save money on transportation; Dominique says she can also borrow that car, or her brother's car, when she needs to. When she missed the deadline for financial aid at community college, Dominique's brother and sister each stepped up with $600 so that she could enroll that semester. When she attempted to reimburse them at tax time, they refused the money. Then her brother bought her a used car and paid the insurance on it for several months. "My brother-anything! He will do it for me." In a sense, Dominique's family and friends are her bank-extending loans and acting as creditors-but they don't charge interest and more readily forgive debts.
Dominique's kin are particularly helpful when it comes to providing for her three-year-old daughter, Tatiana. When Tatiana's swimming lessons went from $30 to $50 per eight-week session, Dominique told her daughter that she would have to quit, but Dominique's brother and sister offered to pay for the lessons. They knew how much their niece loved to swim. Dominique's cousin bought Tatiana a bed, and her brother got a mattress for it; to complete Tatiana's bedroom, Dominique's cousin bought the girl a TV. Her sister also buys clothing for Tatiana using her employee discount at the Gap. Dominique values her family's contributions, noting, "I get lucky."
The benefits that many of our families gain from their networks are not just financial-there are psychological benefits as well. When emergency medical technician LaWanda James, a twenty-three-year-old, black, single mother with a seven-year-old son, gets stressed from falling behind on bills, she finds solace in the knowledge that she can turn to her sister if she needs to: "My sister has always told me, 'Don't stress! As long as I have, you have.' So I have to say I've been blessed in that, since that I never really want or need for anything. And when it does get to that point, [my sister is] yelling at me like, 'Why didn't you ask me sooner? Here.'" Similarly, when we asked Debra McKinley, an engaged, twenty-eight-year-old white waitress and mother of two little girls, to estimate how much she owes her half sister, from whom she borrows most frequently, she laughs and exclaims, "My life! I couldn't put a dollar amount, you know. And the thing is, she doesn't put a dollar amount to it."
Although Dominique gets a great deal from her network, she also gives quite a lot. If she has money and someone asks for it, she'll always share if she can, even if she knows she's going to need it later on. "Do you know how much money like I have out that I still didn't get back?" she asks rhetorically before estimating that she's loaned out nearly $6,800 that hasn't been repaid. Eight hundred went to a close friend whom she trusts, so she thinks she will eventually get that money back, but she doesn't trust the other friends or her ex-boyfriend-additional recipients of her generosity-to act so responsibly. Her willingness to loan is an essential part of her ability to stay afloat; she loans out money when she can because she knows that if she were to need help, those who were able to would reciprocate. Because family members are generous with loans and gifts, she's more likely to have the income to spare when friends ask her for a loan. In many ways, her generous kin are a boon to her wider network of friends.
Shari Barfield, a married, black, thirty-six-year-old realtor, and mother of three-ages one, five, and twelve-gets cash only here and there from her kin, but she gleans a lot of in-kind support. Her mother watches her youngest child, so she doesn't need to pay for child care. When her daughter was born, her family sent loads of clothes and other baby items. Her sons also benefit from grandparents who "spoil them" with gifts every time they visit. Shari and her husband, in turn, help her brother out financially every now and then when he needs it-they don't expect him to reciprocate. Her husband also gives his ex-wife cash over and above his child support when his children need money for a school field trip or some other unexpected expense. The Barfields' finances, like those of so many, are not independent from those of their family and friends. Rather, they are intertwined, to greater and lesser extents, with money, clothes, toys, and food being passed around from those who can afford to help to those who need a hand.Most of our families are receivers but also givers, sometimes simultaneously.
Not all, however, are so lucky to have family or friends to rely on. Carmen Sanchez, a forty-year-old preschool teacher and mother of four, who emigrated to the United States from Honduras, struggles to get any support from her children's father, from whom she's separated; their children range in age from three to seventeen. Every few weeks he'll give her $20-that is, unless she really pushes him. "I said, 'Look, I cannot be just doing the whole thing by myself. One week I will go [to the grocery store] and the other week you will go.' And he said, 'I don't have the money.' But, then, last week he gave me $100 because I said to him, 'Do you want me to look for another man that can feed my children?' He gave me the $100. I was surprised. I was really surprised. I went and paid my cell phone." In addition to struggles with her ex, Carmen and her mother battle over finances. Her mother lives on the second floor of Carmen's apartment and is supposed to be paying her $700 a month in rent. But it's been almost a year since the woman has paid at all. Recently, her mother promised she'd start paying $50 a week toward the rent; several weeks have passed since this offer was made, but Carmen has yet to see any cash. Rather than serving as a resource, Carmen's mother increases her financial burden.
Carmen's story hints at a darker side of personal ties. They not only smooth consumption in tough times but can be the cause of tough times: for example, a grandmother's finances can be thrown into disarray when she must suddenly assume responsibility for her grandchildren because her daughter is about to lose custody of her children to the state.Unlike a bank, which is required to disburse money you've deposited, or a government entitlement that must support those meeting its criteria, support from family, friends, and exes can be unreliable and may be subject to their changing emotions and financial circumstances. Furthermore, as we alluded to above, these are often reciprocal relationships. One must be prepared to give as well as to receive. For families like those in our study who already struggle to make ends meet, giving over even a small portion of their meager resources can be a major hit to an already-strained budget.
Looking at average earnings and spending patterns allows us to get a sense of how much a typical family-such as Ashlee Reed's-earns and spends over the course of a year. But we've also tried to give some sense of the variation that these monthly averages obscure. Many of our families are living near the financial edge. Because of low earnings and frequent financial surprises, only 11 percent are in good financial shape-they have minimal debts and substantial assets such as personal savings to provide a cushion should a bump in the financial road come along. Though all of the families in our study include at least one worker, earned income does not typically stretch to fully meet monthly expenses. Thus putting away a little each month in anticipation of a rainy day is difficult; families' financial planning more often includes figuring out which bill they can most easily neglect, not what they will do with their surplus funds.
Although most families we spoke to engage in some discretionary spending-a child's birthday present or a weekly lottery ticket-their budgets reveal a good deal of thrift as well. Despite their complaints that the "rules" of various government programs often exclude them or penalize them for working-this is an especially common claim among those with fluctuating work hours, like Marissa Lopez-these families are also the focus of a new, work-based safety net-the EITC-which allows them to claim cash assistance on top of their wages, and not in lieu of earnings, as was the case with the welfare system. And most get at least some in-kind assistance-SNAP, government-subsidized health insurance, a housing subsidy-as well. Many draw considerable aid from their networks, but network support is unevenly distributed and can sometimes be more of a hindrance than a help.
Are families spending and saving beyond what they can afford with their monthly earnings because they know the tax refund check is coming? We do see some evidence for this, particularly with heating bills, which parents can put off paying as most jurisdictions prohibit utility companies from discontinuing service because of nonpayment during the winter months. The February refund check happens to be perfectly timed to satisfy these obligations just before the restriction on shutoffs ends in March. Parents also sometimes say they buy Christmas presents on credit in anticipation of the tax refund. However, such behavior is not widespread. This may be because many are unsure of how much they will receive in their tax refund check from year to year-an issue we discuss in the next chapter. Further, financial shocks are so common that families often make spending decisions in response to events beyond their control (a job loss, new brake pads for the car, or a plumber's bill for a clogged pipe). Thus advanced planning of any kind is difficult.
Research on the psychology behind financial decision making has explored whether people make impulsive decisions, rather than well-thought-out plans, because of a lack of willpower, limited cognitive control, or limited attention due to other demands on one's "bandwidth" (how much of our mental capacity is available to us at any given time).Researchers consistently find that those who are operating under strain are less likely to make optimal decisions. Like the dieter who, after avoiding the office candy bowl all day, breaks down at the end of the night and reaches in the freezer for a pint of ice cream, someone operating under tight financial conditions-trying to carefully monitor each dollar coming in and going out-may be more likely to make a rash spending decision that conflicts with her long-term financial goals. The key insight from this research is that a lack of willpower to avoid impulse buys or to align one's behavior to one's long-term financial goals is not characteristic of low-income individuals per se; rather the condition of scarcity takes up valuable bandwidth, in turn hampering optimal spending behavior.
Are the families in our study "overspending," even for the basics? Could they secure housing, food, and transportation more cheaply? The question of how much is "enough" is relative, at least in a rich nation like ours. Thus the closest we can come to answering this question is by comparing the expenses among our households to what other lower-income households in the United States spend to meet basic needs. As discussed above, parents in our sample are not engaging in profligate spending relative to their economically constrained peers across the country. While many could potentially trim some of their spending on the basics, not to mention the "extras" they sometimes consume, economic psychology helps us to understand why they fail to do so: making sound economic decisions that are consistent with long-term financial goals requires bandwidth that may be in short supply.
In future chapters, however, we'll argue that the "scarcity" perspective is not sufficient to explain much of the behavior we observe. Rather, spending and saving decisions are guided by the meaning households attach to the EITC. Further, as we will show, what outsiders may deem "frivolous" spending is often deeply meaningful to these parents-and arguably their children-and may have value that can exceed its monetary cost.
Let's revisit the question we opened this chapter with: Do families like the Reeds really need the additional resources the EITC offers? Ashlee Reed takes home about $1,600 in a typical month, but her bills exceed $2,800. Her finances are wildly out of balance right now because Adrian has no job and has run out of unemployment insurance. But, even when he's working, the money doesn't stretch far enough in the summers, when Ashlee goes for two months without a regular paycheck. Currently, shelter, food, transportation, and child care alone exceed her take-home pay.
Still, Ashlee does spend on some "extras," like cable TV and an occasional six-pack of beer. Some might argue that she should be saving that money to guard against circumstances like those in which she now finds herself. Ashlee would probably contend that she is a worker and thus deserves to splurge a little now and then.
At the outset of this chapter, we outlined two views of poverty. On the one hand, many point to the fact that the poverty line falls far short of what most Americans view as the minimum amount necessary to live on. But on the other, the American poor now consume more than ever before. In light of our data, both views of American poverty are correct. Using the lens of consumption, the Ashlee Reeds of the world are consuming more than the generation that came before, even though they hover around the official poverty line. But when we consider expenses relative to income-even for basic necessities like shelter, food, child care, and transportation-many working-poor households are living in the red at least some, and perhaps much, of the time. Since they work, they believe they shouldn't have to live as if they were impoverished. They believe that they earn the freedom from scrimping from time to time. And, as long as they are playing by the rules and working, they also deserve-at least in their own minds-a hand up from the government when income doesn't stretch to meet expenses.