The misleading United Way report: You don’t need a six-figure income

If you spend the same amount buying food, paying for preschool and driving to work this year compared to last, but your neighbors double what they spend on those items, did you become poorer? According to a perennial report from the United Way, the answer is yes. But that’s a bad measurement of poverty, or financial stability, and shows the flaws with the organization’s Asset Limited, Income Constrained, Employed study.

The United Way has good intentions. The ALICE measurement tries to draw attention to the financial struggles of people who don’t show up in official government poverty statistics. There are millions of these Americans, and many need help. However, the measurement the United Way uses to quantify this problem is counterproductive and detracts from more pressing issues related to poverty.

{mosads}According to the United Way, between a third and half of the population of every state are people who “struggle to manage even their most basic needs — housing, food, transportation, child care, health care and necessary technology.” Essentially what the report does is look at what the average family spends on those items and assumes that this amount is what everyone should be spending. Those who spend less are failing to meet their “household survival budget.”

The reports are done for more than a dozen states on a regular basis. They get wide media attention — hundreds of articles along the lines of “most people in [town or city] struggle to survive.”

But, on its face, this measure of financial stability is absurd. In my home state of Michigan, a lower cost-of-living state, the latest ALICE report says a family of four needs nearly $100,000 to be “financially stable” and about $56,000 to meet the “survival budget.” Applied historically, this measurement would say that the vast majority of American families have failed to spend what is needed for survival — and yet, here we are.

Over the long term, American families are getting richer and have more disposable income. Often, they use this extra money to buy more stuff. House sizes have nearly doubled over the past few decades. So yes, we spend more on housing, on average, but is that additional spending really necessary for survival? Ask your parents or grandparents.

Spending on food consumes half of what it used to from the typical household budget, even though people eat out more and increasingly are choosing more expensive organic or other types of specialty foods. The ALICE report assumes that all this extra spending is absolutely necessary.

Child care costs have gone up, driven by having more women in the workforce and wealthier families paying for more specialized education. Cars are safer and more reliable than ever, but people are spending more to own newer, fancier vehicles, growing average costs way beyond the rate of inflation. Cell phones and computers are common, and many people shell out hundreds of dollars monthly for the privilege of connecting with friends and family from anywhere and getting on-demand access to the world’s library of knowledge and entertainment via the internet.  

Products are improving and people get a much better bang for the buck than ever before. But just because some people, or even most people, are spending more money does not mean that others are poorer as a result. That’s the key problem with the ALICE report: By definition, half of people will always spend “below average” — but just because people aren’t spending as much compared to others does not mean they are on the edge of survival.

A better measure of how people are doing would be to look at how much people earn and what they can purchase with that money. By that measure, nearly everyone (even the United Way’s ALICE population) is better off than similarly situated people were just a short time ago.  

The United Way is trying to help people. But a report saying the typical middle-class (or even upper-class) family is on the brink of disaster doesn’t help. It encourages people to think of themselves as victims of problems they can’t control, and takes attention away from those who really do struggle with poverty and need help.

Jarrett Skorup is director of marketing and communications at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan. Follow him on Twitter @JarrettSkorup.