Are They Poor or Just Broke?
In the worlds of personal finance, debt management, and budgeting, many labels are thrown around to explain or justify bad money behavior. One of these labels is “victim” which I have previously written about as applied to homeowners in foreclosure. In actuality, very few of us who suffer from financial problems are victims in the sense that our problems are caused by others. Instead, we are victimized by our own poor judgment, awful decisions, lack of willpower, and failure to prepare when it comes to handling our own money.
I submit that we should not be so quick to assign the “working poor” label to such a person without truly examining the facts. When I read these stories, I find myself wondering why the newspaper or magazine does not print a complete financial picture for the person, including a statement of income, assets, and other expenses. I want to know if this person is truly “poor” or instead, just “broke.”
What do I mean by this? Let’s start with “poverty.” The U.S. Census Bureau established the 2007 poverty threshold for a single person under 65 at an income of $10,787. The U.S. Department of Health and Human Services sets the 2008 poverty guideline at $10,400 for an American living in the lower 48 states. Sociologists and some economists might apply more subjective criteria. For example, I have seen a “poor” person described as someone having “the lack of freedom to have or to do basic things that you value” or being “deprived of things that everyone around him has” so that he is “likely to suffer a sense of inadequacy, a loss of dignity and self-respect.”
Now what is a “broke” person? In finance, this is a slang term but many dictionaries define it anyway. It means, simply, “lacking funds.” We all know that you do not have to be “poor” to lack funds. In fact, lacking funds – being broke – at the end of the month (and often earlier in the month) has become the norm for many Americans. And why are they “broke”? I have read interviews on this subject of counselors from non-profit credit counseling agencies. One such counselor reported that one in four of his clients were “broke” because of excessive car payments, often spending 15% – 20% of take home pay on cars. Another counselor stated thay many “broke” clients actually had two car payments, each in the $400-$500 range. That’s crazy. You can read some of the lame excuses for buying new cars that are offered up by broke people. Look at this table (compiled by the U.S. Bureau of Labor Statistics) reporting annual transportation costs by income level:
|Income range||2005 spending|
|Less than $19,179||$2,742|
|$19,179 to $35,999||$5,330|
|$36,000 to $57,659||$7,437|
|$57,660 to $91,704||$10,504|
|More than $91, 704||$15,691|
What is worse, these costs grew by a 12% annual rate from 1999-2005 while income levels remained relatively flat. Note in addition that a person incurring these costs could shift a lot of those funds towards health care spending, if there were no car payments. Instead, the BLS also reports that over 25% of car loan payments included car debt rolled over from a prior car purchase.
This is called being “car poor” but is just one example of how a person that a journalist may label “working poor” is not poor at all but just “broke.” We don’t know that for sure because the sympathetic stories do not tell us all that we need to know before we can make that assessment. We know in today’s economy there are lots of people who are “house poor” – in reality, they are broke.
Now don’t get me wrong – there are lots of unfortunate hard working people out there who struggle to get themselves above the poverty line but may genuinely lack the opportunities to get over the hump. These folks are indeed “poor” and need and deserve our help. For the others who are “lacking in funds” because of circumstances within their own control – they are “broke.” Broke people need encouragement and motivation but labeling them poor or even “working” poor does not help them. Calling broke people “poor” may in fact unfairly demean the real poor.