OTTAWA -- How do poor families spend so much more money than they earn? By one measure -- the National Council of Welfare -- the average poor Canadian family spends $4,855 a year more than the $14,366 it receives as income, a difference of 33 per cent. By another measure -- the Fraser Institute -- the average poor Canadian family spends $9,370 more than the $9,114 it receives as income, a difference of more than 100 per cent.
And this counterintuitive phenomenon is in no way a strictly Canadian statistical aberration. The U.S. Census's Consumer Expenditure Survey says spending by the poorest U.S. families typically exceeds income by 100 per cent a year, and has done so annually since 1984.
By this official measure, U.S. households earning between $5,000 (U.S.) to $10,000 a year spend an average of $14,500.
The solution to this mystery will help determine the number of poor households in Canada and in the United States. It will help determine whether this number is rising or falling, whether these countries are winning or losing the war on want. Could we not, simply put, eliminate as much as 50 per cent of the official poverty in North America merely by making family expenditures, rather than family income, the principal test of a family's ability to supply its basic needs?
Canada has no "official" poverty line. Statistics Canada calculates an average cost across the country for food, shelter and clothing and calls it low-income cut-off, or LICO, but insists that this number doesn't define poverty. (Oddly, in its reports on poverty, Statscan omits the people who live in the most wretched poverty -- Canada's natives.)
LICO is a relative measure that reflects spending trends, but makes no attempt to determine the dollar cost of the necessities of life.
The Ottawa-based National Council of Welfare is a conventional lobby organization that seeks to increase federal funding to fight poverty. It produces extensive, sophisticated reports based almost exclusively on the incomes of the poor. It rarely makes reference to the spending of the poor.
Using Statscan's LICO as its definition of poverty, it decides expansively who's poor and who isn't. For a family of four, for example, poverty is $33,251 (Canadian) a year or less. By this measure, 16.2 per cent of Canadians (five million people) lived in poverty in 2006 -- an improbable decline of a mere one percentage point in the past 25 years.
By the council's own calculations, though, the average poor household spends 33 per cent more money a year than it receives as income. Whatever the explanation, these "bonus bucks" lift poor families at the top end of "poverty" toward consumption of $38,000, or consumption that approaches the average, real spending of all the households in the entire country. (The average Canadian household earns $63,393 a year but, after all personal taxes, consumes $44,606 in goods and services.)
By these criteria, the average Canadian household lives only $6,606 a year from a poverty-line existence, while still paying, on average, $12,650 in personal taxes. The council itself says that the average "poverty household" pays $585 in personal taxes. The more affluent of the poor households, of course, pay more taxes than average poor households.
In his most recent look at these numbers, Nipissing University economist Chris Sarlo, author of the Fraser Institute's Measuring Poverty, asks whether it is credible to think that federal and provincial governments would burden poverty-stricken households with such onerous tax burdens. Of course, it is not. In any case, the "bonus bucks" provide enough statistical leverage to hoist hundreds of thousands of Canadians out of poverty.
The people most apt to lose poverty status would be the short-term poor. The council says that there are one million such Canadians. And people can, indeed, be short-term poor, though they won't all experience poverty. Using LICO as a definition of poverty, many young people, earning low salaries in their first career-track job, are impoverished. Authentic poverty, on the other hand, often traps people, and families, for entire lifetimes. The welfare council puts the percentage of households that have spent the past six years in poverty at a credible 5.9 per cent. Coincidentally, perhaps, Mr. Sarlo himself puts the percentage of "poverty households" at 6.6 per cent -- down from 40 per cent, he says, in the past 50 years. Use an objective definition of poverty and count consumption rather than income, he says, and the poverty rate falls to 4.2 per cent, or 1.3 million people.
How does Statscan determine the income of the poor? It asks them. How does it determine the spending of the poor? It asks them. What's the source of the "bonus bucks" that the poor spend? Perhaps, in one of its surveys, Statscan should ask them. We can, meantime, only speculate. Off-the-table earnings. Wanton use of credit cards. Gifts from more affluent family members. Academic scholarships. (Many postgraduate students are, by LICO logic, poverty-stricken.) But Canada's basic information on poverty remains dubious.
No one knows whether the poor, in their reports, minimize the money they either earn or otherwise get. It shouldn't be surprising if they do. Everyone else does it all the time
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