Low Income Living: Can You Really Survive on $20,000 a Year?


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As the discussion about minimum wage continues and evolves, the topic of how much money Americans actually need to survive also rises to the surface. California recently signed a law that will raise the minimum wage to $15 statewide by 2022, with Governor Jerry Brown saying it would bring about “economic justice” for people on the lowest rungs of the pay scale. Several presidential candidates have also said they would consider raising the national wage, and about 87% of Americans say they’re in favor of raising the national $7.25 minimum wage.

One person working full-time hours earning the federal minimum wage will earn about $21,008 in gross income (before taxes are taken out). But the question of whether $20,000 is enough to survive depends on a lot of factors. No family or living situation is the same, and it would be foolish to assume that $20,000 of income per year is the same for one person as it is for another. Still, there are some similar challenges for people who live on this level of income. According to the Federal Reserve, even an income up to $40,000 can be a challenge. “Among respondents in households making less than $40,000 per year, 53 percent indicate that they are either finding it difficult to get by or are just getting by,” the Fed notes in its Report on the Economic Well-Being of U.S. Households in 2014.

The short answer to surviving on $20,000 a year: It can be done. But there are often steep financial consequences and setbacks, and overall well-being definitely relies on individual family characteristics.

Who lives on $20,000 per year?

We know you can survive on an income of $20,000 per year, because a significant portion of Americans are already doing it. According to the Social Security Administration, about 38% of wage earners — or about 60.2 million Americans — earned $20,000 or less in net compensation in 2014 (money that actually goes into their pockets). About 14% of Americans are currently living below the poverty line, according to a report from The Atlantic.

Poverty, as defined by the government, takes into account income and the number of people in the household. At around $20,000, families of three or larger are considered impoverished. (The poverty level is $11,880 for one person and $16,020 for two people.)

Spending on food, housing


Milk | Joe Raedle/Getty Images

People living on $20,000 a year or less can make ends meet, but they spend a much larger portion of their income to do so. According to the U.S. Department of Agriculture, the lowest-income families in America spent 34% of their income on food in 2014, compared to the middle-income families who spent 13.4% of their income on food. That’s despite the fact that low-income families spent significantly less on food than the middle-income families in the first place — more than $2,300 less.

It also shouldn’t be surprising that paying for housing is a greater financial burden for low-income families. Generally, housing is considered “affordable” if it’s 30% of your income. But according to one report on growing housing costs using 2013 data, about 7.7 million low-income households were living in substandard living conditions, and/or paying at least 50% of their monthly incomes in rent.

According to that logic, a significant portion of people with low incomes are paying more than 80% of their wages for two basic necessities: a place to live and something to eat. Basic needs are met, so technically survival is possible. However, it requires that other needs listed below go unmet.

No health care

Many children in low-income families are eligible for public health care — and were even before the Affordable Care Act was passed. However, adults with low incomes often survive the brunt of making ends meet by going without health coverage. According to the Centers for Disease Control and Prevention, 42% of poor adults in 2010 (living at or below their designated poverty threshold) were not covered by a health insurance plan. Even among adults considered “near poor,” or living with an income double that of the poverty threshold amount, 43% didn’t have health coverage. And despite public plans available, about 10% of impoverished children went without health insurance as well.

The figures for adults have increased significantly since that time thanks in large part to the ACA, but it hasn’t solved the problem completely. According to the U.S. Census Bureau, about 25% of adults living in poverty still aren’t enrolled in a health care plan in states where Medicaid has been expanded. In states where Medicaid hasn’t been expanded, the non-enrollment rate is still around 40%.

In many cases, health procedures seen as more “optional” also take a back burner in light of pressing financial needs. One study, albeit a small one, showed that about 64% of young children 3 years old or younger hadn’t had a recommended dental visit, compared to 53% without a visit for families with incomes in the $50,000 to $59,999 range.

No emergency savings

piggy bank with coins

Piggy bank | Source: iStock

The reality is that if you’re putting all of your income into paying rent and buying groceries, there won’t be much left over for savings or other funds that can keep you out of financial trouble in the long run. Regardless of income level, about half of Americans don’t have money for a serious repair or major purchase, one Gallup poll found. Of people who had an income less than $24,000, the main reason was because they didn’t have enough money to meet daily expenses, let alone save for a rainy day.

Another survey shows just how little low-income households are able to save. One Bankrate study found that among households with an income of less than $30,000, only about 70% of people had managed to save 5% of their income for unexpected costs. Less than 10% saved 10% of their income, meaning around 20% had no reported emergency savings at all.

Other problems with low incomes

We want to be careful not to generalize too much about problems associated with low incomes. In some cases, families with incomes around the $20,000 range report being able to raise children comfortably by buying used clothing and toys, limiting activities, and saving money by opting to teach preschoolers at home instead of enrolling them in a private program.

Another blogger reports banning eating out almost altogether, along with postponing vacations, eschewing addictive habits, and forgoing other “extras.” Still, there’s no question that living on $20,000 a year — either by choice or necessity — can bring about other challenges, especially if the family includes children.

One study in particular found that the percentage of Caucasian and Hispanic youth who witnessed various types of violence decreased significantly after moving out of the $20,000 level of income. In both races, the percentage of youth who witnessed violent acts decreased by about 10% when in a family with $50,000 or more in annual income compared to a family with $20,000 or less. Another study found that young children living in low-income neighborhoods had lower verbal aptitudes and greater behavioral issues.

Can you technically “survive” with an income of $20,000 or less? Yes — millions of Americans do it every day. But in some cases they’re one financial emergency away from plunging into debt, or are already in it. In others, there’s enough money to pay for the absolute necessities, but not much else. Perhaps raising the minimum wage will help alleviate some of the issues associated with low-income living, but it will take much more than an additional dollar or two per hour to move from “surviving” to thriving in any real way.

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