How Do Low-Income Families Spend Their Money?

By , and ·November 15, 2021
Duke University and University of Texas at Austin

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The Issue:

Over 10 million American children —1 in 7— were living in poverty in 2019, as measured by the official U.S. poverty level. The proportion is even higher for children younger than 6 and for Black, Latino, and American Indian children. Many of the programs in the U.S. social safety net are specifically targeted to help families with children residing in poverty meet core needs such as food, housing or health care. Examining the typical expenditures of families with children residing in poverty offers a fuller picture of how they allocate their limited funds and the extent to which government programs are available to cover costs of some of these necessities.

Nearly 75% of expenditures for families living in or near poverty goes to food, transportation, rent, utilities, and cellphone service.

The Facts:

  • Families at the lower end of the income distribution spend a substantial share of their income on core needs. We used the Consumer Expenditure Survey, which provides estimates of household expenditures from a nationally representative sample to examine how families residing in poverty or near poverty spent the money available to them over the period 2015 to 2019. We focus on households with any child aged 18 or less living at or below 200% of the federal poverty line because this represents the upper threshold of eligibility for most safety net assistance. The specific income levels vary with family size and relationships of household members. (For reference, it was $42,660 for a family of 3 in 2019.) On average, nearly 75% of the total expenditures for these families went to food, transportation, rent, utilities, and cellphone service (see chart). This is in line with comparable analyses showing that families at the lower end of the income distribution spend a far greater share of their income on categories considered core needs relative to families in the middle or higher end of the income distribution (see here and here). In our analysis, these spending allocations look similar for families residing in poverty across different racial and ethnic groups, including on expenses that directly benefit children, such as childcare, education, and toys.
  • There is government support for spending by families residing in poverty on healthcare, food, utilities and housing. Government programs provide full or partial coverage for example for health care via Medicaid, food via the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and the Supplemental Nutrition Assistance Program (SNAP), utilities via the Low Income Home Energy Assistance Program LIHEAP, and housing via the Section 8 housing choice voucher program
  • But aid is limited and there are gaps in coverage, which means that many of these families still have out-of-pocket costs to cover basic categories. We find that two-thirds of the families reported spending out-of-pocket on utilities, and these make up nearly 12 percent of average total monthly expenditures. Similarly, forty percent of the households in our data spent out-of-pocket money on rent, which took up about 30 percent of total average monthly expenditures for these families. This may be due to a variety of factors. Income eligibility criteria may leave out some families whose income is above cutoff rates but still below twice the federal poverty line (for instance, household income must be at or below 130% of the poverty line to be eligible for SNAP). Some families may be ineligible because of difficulty meeting or providing required documentation to meet work requirements or because of household characteristics (e.g. stricter requirements for a two-parent household, multi-generational households or households with members who do not have U.S. citizenship). Moreover, there is restricted availability of subsidies, which means that families that are eligible for assistance often have to cover these costs while they wait for housing or childcare vouchers, for instance. And it may also be the case that subsidies are insufficient for households’ needs.
  • There is a wide degree of variation in the expenses families residing in poverty face. For instance, out of pocket expenditures on health care – including insurance premiums, medical services, prescription drugs, and medical supplies – vary greatly across families with children. Even though the majority (66%) reported zero out of pocket health expenditures, the other 34% of families spend an average of $147 each month (see chart below). Similarly, the share of households that report out-of-pocket spending on childcare is quite low – only 7 percent of families report any out-of-pocket childcare expenditure. This likely reflects that some formal paid center-based care is typically subsidized through programs like Head Start, and because a lot of non-parental care is provided through unpaid informal providers like relatives. However, those households that do report spending on childcare spend an average of $153 out of pocket each month — almost 10% of total expenditures for these families. 

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  • There is very little targeted assistance for expenditures on transportation and technology, which have become essential for current day-to-day life. About two-thirds (63%) of families reported spending out-of-pocket for transportation. These families spent 14% of their total expenditures on transportation costs at nearly $333 on average each month. Even though transportation is a key expenditure for job retention and access to services, including healthcare, few family or individual level subsidies exist for families residing in poverty outside of broader government investments in transportation infrastructure such as bridges, roadways and public buses and trains. In fact, many government programs count the value of cars — considered an asset — against eligibility determination for receipt of benefits. Additionally, mobile or smart phones are critical for access to the Internet, as well as a means for interacting with schools and child health providers, accessing supports and services for children, and facilitating job search, among many other necessary functions. Not surprisingly, more than four-fifths (82%) of families with children at or below 200 percent of the poverty line spent money on cellular service.
  • Expenditures on children went beyond the very basic categories of food, shelter, and health. Just under one-fifth of families with children residing in or near poverty reported expending money on early learning materials; 14% of families spent on books, 16% on toys, and 8% on education (schoolbooks, supplies, and/or tuition). More than one-fifth (21%) of all families with children reported expenditures on diapers. This figure increases to 60% if we only consider households that include a child under 2, with an average monthly expenditure of $27 among such households that report spending on diapers. Very few families report spending on infant furniture – just 4% overall and 13% of families with at least one child under 2.
  • Spending on core needs, and on children, exceeds spending on alcohol or tobacco. About one-fifth of families residing in poverty reported any household expenditure on alcohol, with a monthly average of $24 for those households. About one-sixth reported any expenditure on cigarettes or tobacco, at a monthly average of $153. The finding that a relatively small portion of very low-income households spend any money at all on alcohol and cigarettes runs counter to some of the assumptions that have played a role in structuring assistance programs for people residing in poverty in the United States; and, continue to be a matter of policy debate in considerations of unconditional cash benefits to families even though there is little empirical support for the claim that cash transfers would translate into irresponsible spending.

What this Means:

Our analysis shows that in spite of the safety net programs that support families residing in poverty, those living at or below twice the federal poverty line, devote a substantial share of their monthly expenditures to goods and services necessary for basic shelter, health, and nutrition. The data do not support claims of ‘irresponsible’ spending on alcohol or tobacco among these families. Even though many public programs now rely on technology to get access, social programs have not caught up to the demands of contemporary daily life. Transportation, utilities, and expenses related to uptake and use of technology are all key expenditures that impact quality of life, parenting, and economic opportunity, yet are not typically covered by government programs or subsidies. The data also suggest evidence of places where public subsidies may fall well short of families’ needs, such as food costs. Families may have access to food through food pantries and informal support through other means we can't observe, and SNAP dollars make up some of the food expenditures in our data. Still, more than two-thirds of families residing in or near poverty report sizable out-of-pocket food expenses and households with children make up the largest share of households experiencing food insecurity in the United States. These facts speak to criticisms of the existing program’s reliance on potentially outdated formulas inadequate to the food needs of a present-day household with children.


Child Poverty / Poverty / Safety Net
Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
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