More specifically, poverty statistics are essential for determining the size and composition of the population whose basic needs are going unmet and for tracking how conditions facing this group are changing over time. Accurate poverty measures help society target resources to alleviate hardships experienced by under-resourced populations and are crucial for assessing the effectiveness of programs designed to improve their wellbeing. For these reasons, poverty measures produced by the federal statistical system are critical to meeting the nation’s research, policy, and public information needs.
Measurement of economic poverty involves estimating two components:
A threshold representing the cost of obtaining a basic set of needs such as food, shelter, utilities, and clothing (expenses)
The economic resources available to families, individuals, or households (income)
If a household’s estimated resources fall below the threshold, it is considered to be living in poverty.
Developed in the 1960s and then formally established in 1978 by the Office of Management and Budget, the Official Poverty Measure (OPM) uses data collected by the U.S. Census Bureau to determine the population whose basic needs are going unmet; the needs threshold is based solely on decades-old food budgets. Following efforts to improve upon the OPM, including a National Academy of Sciences study published in 1995, the Supplemental Poverty Measure (SPM) was created in 2011 by the Census Bureau and the Bureau of Labor Statistics to help understand the effect of taxes and government programs on the ability of individuals and households to rise out of poverty—a measurement capacity that was going unmet by the OPM. The current study, requested by the Census Bureau, assesses the strengths and weaknesses of the SPM and provides recommendations for updating the methodology to more accurately reflect the basic needs of, and resources available to, households, and to help policy makers orient programs to more effectively alleviate hardships experienced by under-resourced populations. The proposed Principal Poverty Measure (PPM) modernizes the SPM by taking into consideration the way basic needs have evolved over the past two decades and by tapping into new and improved data sources.
Three times the cost of a minimum food diet in 1963 (in today’s prices). Is an absolute measure (does not change) and is the same as it was in 1963, adjusted for inflation.
Therefore, it does not account for how society and the economy change, and that the financial realities that families face must adapt as well.
Money income before taxes (or cash income)
Family: Individuals residing together and related by birth, marriage, and adoption
Thresholds are adjusted to reflect the composition of the family
Median spending on food, clothing, shelter, and utilities; internet, phone, and a little bit more (based on the CE Survey).
Adjustments are made to reflect impact of geographic location and housing mode (renting vs owning with and without a mortgage)
Each year thresholds are recalculated as opposed to simply updating by inflation.
Money Income before tax plus stimulus payments, government in-kind assistance, subsidies and tax credits less taxes, medical expenses, child care, work expenses and child support paid
NOTE: Government cash transfers are included in the OPM measure.
SPM Family: Families + unmarried partners and their relatives, unrelated children under 15 and foster children under 22
Thresholds are adjusted to reflect the composition of the SPM family.
SPM threshold for food, clothing, internet and phone plus the costs of rental housing, medical care and child care and a little bit more.
Updated annually to account for the changes in spending and costs.
SPM resources plus adjustments for the benefits received for health care, child care, and home ownership consistent with treatment in thresholds.
Household: Everyone living together under one roof.
Thresholds are adjusted to reflect the composition of the household.
| Supplemental Poverty Measure (SPM) 2011-Now |
compared to |
Principal Poverty Measure (PPM) Proposed |
|---|---|---|
ThresholdMedian spending on food, clothing, shelter, and utilities; internet, phone, and a little bit more (based on the CE Survey). Adjustments are made to reflect impact of geographic location and housing mode (renting vs owning with and without a mortgage). Each year thresholds are recalculated as opposed to simply updating by inflation. |
|
ThresholdSPM threshold for food, clothing, internet and phone plus the costs of rental housing, medical care and child care and a little bit more. Updated annually to account for the changes in spending and costs. |
Economic Resources AvailableMoney Income before tax plus stimulus payments, government in-kind assistance, subsidies and tax credits less taxes, medical expenses, child care, work expenses and child support paid NOTE: Government cash transfers are included in the OPM measure. |
|
Economic Resources AvailableSPM resources plus adjustments for the benefits received for health care, child care, and home ownership consistent with treatment in thresholds. |
Measurement UnitSPM Family: Families + unmarried partners and their relatives, unrelated children under 15 and foster children under 22 Thresholds are adjusted to reflect the composition of the SPM family. |
|
Measurement UnitHousehold: Everyone living together under one roof. Thresholds are adjusted to reflect the composition of the household. |
Under the SPM, an uninsured family may be categorized as not in poverty, especially if they have few medical expenses. However, the PPM could categorize the same family as in poverty if they cannot afford to pay for health insurance.
The SPM establishes the shelter need based on expenditures for three different groups—renters, homeowners with mortgage, and homeowners without mortgage. The PPM simplifies this aspect by specifying the same basic shelter need for everyone with variations only by family size and location.
The SPM assumes that only working families require childcare, which is then treated as an expense that reduces the family’s level of resources. The PPM assumes that other families with children— including those supporting students and disabled adults—also have a basic childcare need. The PPM also accounts for the impact of medical care and childcare subsidies, which can be a substantial transfer to families.
There are other, alternative measures of poverty. To learn more about these measures, watch our September 29, 2023, seminar, Modernizing Poverty Measurement .