The Struggle Is Real And Cyclical In Poor Areas, Report Shows

What is the most likely city in which residents would have the most disposable income?

Would it be one with the highest wages or the lowest cost of living?

It turns out that even if housing and other expenses are steep as skyscrapers, income outpaces the costs, according to a study by Clever Real Estate, an online real estate service.

A researcher crunched federal income stats and subtracted spending and tax data from multiple sources to find that answer. And although Americans outside pricey metro areas might be baffled by those housing costs, the residents in those areas can pay it – and then some.

The No.1 metro area, by far, was the Bridgeport metro area, which includes the tony towns of Greenwich, Stamford and Westport.

Residents along Connecticut’s Gold Coast averaged $1,683 left of their paycheck (pay period of two weeks) after expenses (housing, utilities, health, groceries, and non-recreational goods and services). The national average was $140.

No. 2 was the San Jose area in Silicon Valley, where the average was $1,296.
At the bottom, people were upside down each pay period. The residents of McAllen, Texas, had -$238 on average and people in New Haven had -$156. Although New Haven is only a couple of exits down I-95 from Bridgeport, that area had not recovered well from the collapse of its industrial base.

But a high-cost area did not always correlate to affordability provided by a greater income. In New York City, for example, residents were left with -$109 after expenses.

Other expensive cities did not fare as badly. Residents in San Francisco, considered the city with the nation’s second-highest cost of living, had $433 after expenses.

“It's reasonable to expect residents in places like San Francisco, where the cost of living is 225% of the national average, to struggle paycheck to paycheck due to exorbitant living expenses,” according to a report by data scientist Francesca Ortegren. “The truth is, people in these high-cost cities are finding ways to manage their expenses.”

 

With so many Americans living close to the financial edge, the report issues a warning.

“Spending the majority of one's paycheck before the next payday induces a slew of problems, including stress and not being able to save for the future,” according to the report.

Among the report’s findings:

• The average American spends nearly 60% of their income on living expenses; only 13 of the 75
• most-populous metros spend less than 80%.
• Living in an area where rents are high (e.g. San Francisco) doesn't necessarily mean residents are unable to save; many residents make lifestyle changes to save more than the average American.
• A regression analysis revealed that people earn an additional $352 annually for each 1% hike in cost of living, meaning people earn more in places that cost more.
• 31% of Americans have delinquent debt in collections.
• 6% of metro residents live in poverty despite being employed.
• The largest share of per capita spending goes toward housing and utilities ($403), followed by miscellaneous goods and services (including home, auto, health, and other insurance, $348), transportation ($224), healthcare (not including insurance, $160), and groceries ($137).
• Southern residents are more likely to live below 125% of the poverty level.

About 12% of Americans earn less than the poverty threshold, which is $26,200 for a family of four in most states. Many assistance programs place their qualifications as 125% above the poverty threshold, which would cover 18% of Americans who earn less than $32,750 per family of four.

The struggle for subsistence takes its toll on health and the ability for people to invest the resources that can lift them and future generations out of dire straits.

The cycle is only accelerating for low-wage Americans who cannot save. The population with debt was related to wages in the report.

“The average U.S. household holds over $30,000 in debt and over half of Americans break even or spend more than their income each year,” according to the findings. “And people's debt can spiral out of control quickly after emergency medical treatment or missing a payment on a credit card.”

Every 1% of the population with delinquent debt correlated with a 4% increase of the population earning less than 125% of the poverty level.

“In other words,” said the report, “there's a cycle of poverty where low income families need to take out debt that compounds with interest, creating a mountain of unscalable debt.”

Steven A. Morelli is editor-in-chief for AdvisorNews. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@adnewsfeedback.com.

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