Economy / Income Insufficiency

 

Income Insufficiency

 

Income insufficiency is a measure of financial hardship that compares family income to estimated family expenses. While poverty rates are widely used as a measure of financial hardship, there is some evidence that poverty rates rely on outdated assumptions, which can lead to underestimated family expenses and financial hardship.Forsyth Futures developed the income insufficiency measure to supplement analysis of financial hardship based on poverty rates. The income insufficiency measure accounts for factors not considered in poverty calculations.

This report begins by documenting expense estimates, which represent the lowest cost of living that can be generally assumed for various family situations. This is followed by an analysis of income insufficiency rates, which are the percentages of residents living in families with incomes that are lower than their estimated expenses. The expense estimates used to calculate income insufficiency rates were based on demographic and geographic factors not considered in poverty calculations and how each expense changes over time.

The data dashboard below shows current and recent trend data for rates for income insufficiency in Forsyth County.

Data Dashboard: Income Insufficiency

Sources for and Circumstances Considered by Expense Estimates

Expense CategorySource NameSource InstitutionGeographic Level of DataCircumstances Accounted for
ChildcarePersonal CorrespondenceNorth Carolina State UniversityCountyAge, presence of nonworking adults who could provide free childcare
FoodLow Cost Food PlanUS Department of AgricultureRegionAge, sex
HousingFair Market RentsUS Department of Housing and Urban DevelopmentCountyFamily and household size/comparison
TransportationConsumer Expenditure SurveyBureau of Labor StatisticsRegionFamily size
HealthcareMedical Expenditure Panel SurveyUS Department of Health and Human ServicesRegionFamily size
Health InsuranceConsumer Expenditure SurveyBureau of Labor StatisticsRegionFamily size, age
Other ExpensesConsumer Expenditure SurveyBureau of Labor StatisticsRegionFamily size
TaxesFederal and State Tax CodesN/AIncome, wages, standard deduction, exemptions, some credits

This table outlines sources for these expenses, each of which is similar or identical to those used by MIT and/or the United Way. All estimates are as sensitive to location and family circumstance as the available data would allow. Countywide expense data were used whenever possible, however most expense categories were based on expense data calculated at the state or regional (Northeast, Midwest, South, West) level.

Components of Estimated Expenses for Example Households in Forsyth County, 2016

 One AdultTwo Working AdultsTwo Parents, One Working, with a 2 and 4 year oldTwo Working Adults with a 2 and 4 year oldOne Adult with a 2 and 4 year old
Childcare$0$0$0$13,802$13,802
Food$2,662$4,965$7,933$7,933$5,271
Housing$6,828$6,828$8,376$8,376$8,376
Transportation$3,748$7,811$9,863$9,863$8,237
Healthcare$475$950$1,316$1,316$841
Health Insurance$1,787$3,695$3,424$3,424$3,431
Other Expenses$2,360$3,847$5,452$5,452$4,275
Taxes$3,630$4,687-$808$6,544$7,924
Total Estimated Expenses$21,490$32,785$35,556$56,709$52,157

This table shows the estimated expenses for several example households in Forsyth County.

  • Compared to families with no children, families with two preschoolers in need of full-time childcare are estimated to have about $25,000 to $30,000 more in expenses. Over half of this increase is from childcare and associated taxes.
  • The example families above have children not attending school, which have the highest childcare expenses. School-aged children with working parents still have childcare expenses for after-school and summer care.

Poverty Thresholds and Estimated Expenses for Example Households in Forsyth County, 2016

 One AdultTwo Working AdultsTwo Aduts, One Working, with a 2 and 4 year oldTwo Working Adults with a 2 and 4 year oldOne Adult with a 2 and 4 year old
Total Estimated Expenses$21,490$32,785$35,556$56,709$52,157
Poverty Threshold$12,486$16,072$24,339$24,339$19,337
Difference172%204%146%233%270%

This table shows that total estimated expenses are consistently higher than the federal poverty threshold used by the Census Bureau to determine poverty status.

Hourly Wages Required for Example Households in Forsyth County to Meet Estimated Expenses with Full-Time Work, 2016

 One AdultTwo Working AdultsTwo Aduts, One Working, with a 2 and 4 year oldTwo Working Adults with a 2 and 4 year oldOne Adult with a 2 and 4 year old
Total Estimated Expenses$21,490$32,785$35,556$56,709$52,157
Workers12121
Hours Worked2,0804,1602,0804,1602,080
Required Hourly Wages$10.33$7.88$17.09$13.63$25.08
Minimum Wage$7.25$7.25$7.25$7.25$7.25
Difference143%109%236%188%346%

This table shows the hourly wages that workers in each example family would need to cover their estimated expenses with full-time (2,080 hours a year) work. None of the example families would be able to meet their estimated expenses with full-time minimum-wage work. Some families with children would be unable to meet their estimated expenses earning twice or three times the minimum wage.

Key Point: Income Insufficiency Rate Generally Increasing

Please see data notes in the appendix for details on interpreting this visualization.

  • Income insufficiency in Forsyth County rose significantly between 2010 and 2011 at a time when poverty rates were rising as well.
  • Income insufficiency rates between 2011 and 2016 were generally higher than the prior rates between 2007 and 2010.

Key Point: Disparity Present in Income Insufficiency Rates by Age

  • Roughly half of children under 18 live in families that had insufficient income.
  • Children under 18 and adults age 18 to 24 years old had similar income insufficiency rates.
  • Adults 25 to 44 year old and 45 years and older both had lower income insufficiency rates than younger age groups.

Key Point: Disparity Present in Income Insufficiency Rates by Race/Ethnicity

  • African American and Hispanic/Latino residents were roughly twice as likely to live in families with insufficient income as White, non-Hispanic residents.
  • The income insufficiency rates of African American and Hispanic/Latino residents were not significantly different.
Calculation of Expense Estimates

The Census Bureau defines the poverty level of families based only on income, family size, and the number of children and adults 65 and over.2 It does not consider location or any other factor that could influence expenses. As a result, in 2016, the average family of four was not considered to be in poverty if they had an income of at least $24,563, regardless of whether they lived in New York City or rural North Carolina.  Additionally, there is some evidence that these estimates rely on outdated assumptions, which cause them to underestimate family expenses and financial hardship.1 The flaws in the current measure are widely recognized. While researchers have been actively investigating alternative methodologies,3 the Census Bureau has not replaced its poverty calculations and researchers continue to commonly use Census Bureau poverty statistics.4

Forsyth Futures attempted to address shortcomings in poverty calculations by creating alternative expense estimates based on a more detailed consideration of family circumstances. It built on similar analyses in the Self-Sufficiency Standard created by the Center for Women’s Welfare at the University of Washington for the United Way and the Living Wage Calculator developed by Dr. Amy Glasmeier at the Massachusetts Institute of Technology (MIT). Forsyth Futures’ model estimates eight categories of expenses:

  1. childcare
  2. food
  3. housing
  4. transportation
  5. healthcare
  6. health insurance
  7. other expenses
  8. taxes.

These estimates represent the lowest cost of living that can be generally assumed for each family type based on the information available; they are designed to identify income levels that could reasonably support families of different sizes.

Appendix: Notes on data analysis and interpreting expense estimates and income insufficiency rates

Expense estimates represent the best estimates that Forsyth Futures could make with the data available.  The notes below detail key considerations when using expense estimates and income insufficiency rates.

Note on Data Analysis

The data provided in this report come from the Census Bureau’s American Community Survey (ACS). The ACS asks questions similar to those found in the Decennial Census, but does not survey every household. As a result, there is still some uncertainty around estimates that are based on this survey. This uncertainty is measured before any estimates or comparisons are reported. Estimates that could be off by at least 24% are marked with a cautionary note. Similarly, estimates are only referred to as being higher or lower than another when the difference is statistically significant, meaning that there is at least a 95% likelihood that the two numbers are different when the uncertainty of the estimates is considered.

Expense estimates and income insufficiency rates do not reflect actual financial need.

Expense estimates represent the lowest cost of living that can be generally assumed for each family type based on the information available and are designed to identify income levels that could reasonably support different sizes of families. Expenses for some families may be lower due to individual circumstances; for example, extended family may be able to provide childcare, but these kinds of situations cannot be assumed for the general population

Components of expense estimates may not account for all regional differences.

Expense estimates are based on data that best accounts for many important factors, but may not account for all relevant information. For example, healthcare expenses are calculated for Forsyth County based on average healthcare expenses across all southern states. This is more accurate than using a countrywide average, but would not account for any characteristics of expenses specific to Forsyth County.

Income insufficiency rates in this report should not be compared to those published in the Forsyth County Poverty Study.

An earlier version of these calculations was used in the Forsyth County Poverty Study. Forsyth Futures has since refined the expense estimate calculations. As a result, expense estimates and income insufficiency rates in this report should not be compared to their counterparts in the Poverty Study. These changes included completely replacing all healthcare calculations and better accounting for potential shared housing costs among roommates, in addition to other minor changes. For more information, contact Elizabeth Lees (elizabeth@forsythfutures.org). 

Childcare expenses reflect a combination of two data sources, and estimates for Forsyth County are calculated differently than for its peer communities.

Childcare expenses for Forsyth County are not calculated using the same source data as the one used for its peer communities. These data sources have three important differences:

  • Childcare cost estimates for peer communities are based on statewide averages, whereas estimates for Forsyth County are based on county averages. As a result childcare estimates in peer communities may be less accurate than the childcare cost estimates for Forsyth County. For example, average annual childcare costs in Forsyth County were roughly $300 lower than the state average for infants and roughly $900 higher than the state average for school-age children.
  • Childcare expenses in Forsyth County represent the average cost of 4-star home-based care, but expenses for peer communities are based on all home-based care. The difference between average childcare expenses and average 4-star childcare expenses in Forsyth County was less than $100 per child.
Literary References
  1. National Research Council (1995). Measuring poverty: A new approach. Washington, D.C.: National Academy Press. Retrieved from: https://www.nap.edu/read/4759
  2. S. Department of Commerce. (2017). Poverty thresholds – 2016 [Data File]. Retrieved from: https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html
  3. Short, K. S. (2005). Material and financial hardship and income-based poverty measures in the USA.  Journal of Social Policy, 34(1), 21-38.  doi: 10.1017/S0047279404008244
  4. Chetty, R, & Hendren, N. (2015). The impact of neighborhoods on intergenerational mobility: County-level estimates .  Retrieved from: https://scholar.harvard.edu/files/hendren/files/nbhds_paper.pdf
Data References for Expense Estimate Calculations