Measuring Poverty

How we measure poverty

The common definition of poverty is associated with a single national income threshold established annually by the federal government based on a multiple of the price of a common market basket of goods and services deemed essential for individuals and families to live at a subsistence level.  In reality the definition of poverty is much more complex.  

By focusing on a single income level as a determinant of poverty we understate the breadth of the problem and miss entirely the relative nature of impoverishment in a whole society or in a given community. 

"Poverty is really the lack of freedom to have or to do basic things that you value," said Amartya Sen, the Nobel laureate in economics.  This lack of freedom is influenced not only by the absolute amount of income a person makes but by the cost of living where he or she resides and the amount of other resources available to maintain a household and care for a family. 

For example, in King County approximately 26,000 family households (6%) have income below the federal poverty level while 86,000 households (20%) have income below 50% of the area median income meaning at a minimum they have less than half the purchasing power of the median family in King County.^[1]

Asset Poverty

In addition the federal poverty level does not include any measure of a household accumulation of assets.  In the American economy where the social safety net is relatively weak compared to other high income advanced economies the accumulation of assets such as savings, retirement, homeownership and simple investments serve as the personal safety net for people if they fall on economic hard times. 

In Washington 19.5% of households and in King County 26.3% of households live in asset poverty.  Asset poverty is defined as lacking sufficient reserves or resources to live at the federal poverty level for three months if a householder loses his or her source of income.^[2] 

Why measuring income security correctly is important

In practical terms the effect of incorrectly measuring the income insecurity of individuals and families is to deny many people access to resources that are necessary for them to survive and thrive. For example, eligibility for many government support programs is keyed off of the federal poverty level.

In the past two decades the federal government has realized the deficiency of the current measure and has adjusted some program eligibility guidelines to 125, 150% and in some cases up to 200% of the federal poverty level. 

At a policy level, understating the impact of income insecurity by measuring it against a single poorly defined standard   masks the social and economic costs of having a significant portion of the population who are living on the edge of financial crisis.

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^[1] US Census Bureau American Fact Finder.  The median family income in 2005 in King County was $74,255.
^[2] “Asset and Opportunity Scorecard, 2005.” Corporation for Enterprise Development. http://www.cfed.org/home.m