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.

Other labels that we see in the personal finance world– used particularly to explain excesses in consumer credit – are “poor” and “broke.”   In other words, if someone is in dire financial straits because of overwhelming debt, that person (or that person’s enablers) might try to explain that predicament by stating that the person is financially “poor” or forced to live in “poverty.”  In my readings of local human interest stories, money predicaments are sometimes blamed on medical expenses incurred by someone who is reportedly unable to afford health insurance.  Such a person is then referred to as belonging to the class of the “working poor.”

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
All households $8,344


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.

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4 Responses to “Are They Poor or Just Broke?”
  1. Jesse says:

    “One such counselor reported that one in four of his clients were “broke” because of excessive car payments”

    Thats interesting because I’d say that my car payment is one of the things I hate the most. Ill be glad to get rid of that. A lot of people who aren’t broke are spending a large amount on car payments that could easily be going somewhere more constructive.

  2. Great blog. Sorely needed. Stop by our blog for Baby boomers:

    We have social commentary and support. We offer a great ebook called “Boomers without Bucks” for boomers that will live on a fixed income.

  3. doctor S says:

    I too wish I did not have a car payment. I am going to ride this car until the wheels fall off! I have friends who make little money but push around BMW’s and large SUV’s with big price tags. Never made sense to me. I guess it goes back to self-image and ego? Who knows! 2010 I will be car-debt-free!

  4. cjbr549 says:

    I guess that I don’t have the same sympathy for the poor that you do. Some people find that callous, but I grew up poor, so I was around the ‘poor’ (real poor people, not just broke) quite allot. Most are that way because they are either lazy or made poor decisions. They made poor decision mainly because their parents didn’t know enough to push them towards better decisions. I was very lucky, my mother and grandmother saw the writing on the wall and pushed me towards higher education. My grandfather instilled a work ethic in me and I worked enough real manual labor jobs to motivate me to go to college and stick with it till graduation, then due to a terrible job market to stick with grad school till graduation. With no financial help from my parents or grandparents who were not able at the time. I have two very intelligent brothers that are poor as dirt and always will be, because they are lazy as the day is long. They will spend more time figuring out how not to work than they would to just do the work. If they ever manage to not be poor, they will be broke. I know too many ‘poor’ people drawing checks from disability because they can’t handle the ‘stress’ of a job. To most of them that means getting up in the morning and actually going to one. So I just can’t share your financial sympathy. For the mentally ill, yes. The truly physically disabled, yes. But even many of these have the drive and motivation to try, just not the same abilities as the lazy, judgment lacking ‘poor’. So I’m callous.

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