If any of you saw your local newspaper or favorite national news outlet this morning, you might have come across an article by Hope Yen of the Associated Press called Census Shows 1 in 2 People Are Poor or Low-Income. In it, the reader is subjected to what are meant to be frightening facts and figures about the state of poverty in the United States; how we have some how devolved back into post-Industrial Revolution England as street urchins out of a Charles Dickens novel grovel in the streets next to super-rich textile barons wearing diamond-encrusted cufflinks.
The article explains that low-income is typically defined as those earning between 100% and 199% of the poverty level. With a little bit of research, it isn't hard to discover that in 2011, the poverty level for a married couple with two kids was $22,350, meaning that this typical household would be considered low-income if it was earning $45,000 per year. To put that into perspective, such a family would be in the top 1.72% of income in the world. It would be richer than 983 out of every 1,000 households on the planet. That is how we are defining low-income now.
Only in the United States can you rank in the top 1.72% of global income, enjoy heating, air conditioning, two cars, cell phones, video game systems, and high definition televisions and be considered low-income. Only in the United States can a member of the press, in sincerity, publish an article that essentially states the median family with a near median income in one of the richest nations in the history of the world is low-income. The sense of historical, and global, perspective is entirely lacking for two reasons: Envy and Ignorance.
When most reasonable people hear about low-income or poverty households, they think of struggling senior citizens who can't afford heat in the winter or a single mom with three kids holding down two jobs just to keep her family from going hungry. That is poverty. That is the sort of thing we need to protect against as a society. That is why we need to create upward ladders of social mobility and downward safety nets of social protection such as food banks, shelters, and work training programs.
By reclassifying such a large percentage of the population as poverty-stricken or low-income, the psychology of what will happen is not a mystery. Familiarity and donor fatigue will kick in and the middle and upper classes, seeing that "poor" people are able to afford things like the occasional Playstation or Disney World vacation will have less of a problem ending those important social programs. The "why should I work while they get the benefit" mindset will kick in and, in some cases, it will be justified. Meanwhile, the true poor, the people who might be shivering under a blanket on nights when the windchill is -10 degrees Fahrenheit or who haven't eaten in two days, suffer the most, getting lost as collateral damage.
How can this failure of intellect occur? It is something called the contrast principle. Basically, humans compare themselves to their neighbors, friends, colleagues, and contemporaries to determine where they rank. If you are earning $100,000 but live in a neighborhood where everyone you know is earning $300,000, it is likely that you would be dissatisfied with your life. If you are typical, you would try to keep up with the guy next door when he bought an $90,000 Lexus even though on a percentage-of-income basis, you should only be buying a $30,000 Ford. In our parents' and grandparents' generation, mass media wasn't nearly as ubiquitous as it is today. Now, as you sit at home in the comfort of your modest, though historically luxurious dwelling, you can see into the lives of people earning $10 million or $20 million per year, who spend more on a watch than you earn in twelve months. When you struggle to write a check for school supplies, that is present in the back of your mind. If it didn't have an effect, Madison Avenue would be out of business.
There is an enormous difference between someone earning $50,000 a year and someone earning $500,000 per year. To pretend otherwise is foolish. It is equally as absurd to pretend that someone earning $50,000 a year is low-income. They're not. They're not even close. They are living a life that is historically unfathomable to all but a handful of elite; the type of thing ancestors fought and died in the hope of attaining.
Not everyone wants to know how to get rich. Not everyone will someday have a portfolio generating dividends, interest, and rents sufficient enough to let them write a check for a second or third home. I've made clear that your goal should not be to die with the highest net worth possible, but instead, live a life getting the most utility out of your money possible. That is all well and good but let's be clear. Someone earning $45,000 per year, or more than 983 out of every 1,000 people alive on the planet is not low-income. They are only low-income if they are trying to afford the things that a family earning $150,000 or $500,000 a year can afford. Trying to paint their situation as some sort of catastrophe when they live better than many of the European Royalty did 400 years ago is absurd, offensive, and ignorant. It shows no knowledge of history or empathy for how most men and women live. It's enough money that a reasonable person, living in a reasonable home, driving a reasonable car could retire with a multi-million dollar net worth if they began saving and investing early in life.