Why $140,000 Is The New 'Poor'

So there was this blog post that went crazy viral and it talked about what it means to be poor in America. And the author of that post, Michael Green, said that the real poverty line is not $31,000 like the government's telling you. Instead, it's actually closer to $140,000 a year. The entire point for me was not to actually dig in and define a new poverty line. It was to understand what the average American household was experiencing. Now this obviously got a lot of attention and a lot of debate. So in today's video, I wanna share with you what that post said and give you my personal thoughts. So let me just start right here. The question is, what does it mean to be poor in America? In the 1960s, the government asked Molly Orshansky to go and find out the answer to that question. What is poverty? Which if you think about is really hard to define because one person's definition might be really different than someone else's. But here's how the government defined it. They started by assuming a couple of things. Number one, they assumed it was a family of four. Secondly, that food was the biggest and most predictable part of their budget and that if you knew the bare minimum cost of feeding that family, you could just sort of work backwards to estimate everything else because food was consistently the biggest part of a family's budget back in the 1960s. But fast forward to today and we spend proportionally way less money on food and way, way more on everything else like housing and healthcare and childcare, transportation, insurance, debt, taxes and all those other things. And those categories did not get factored in to the original formula. And what that has done is it has created the illusion that poverty has barely grown. But Michael Green says, if we apply the same original method and the same logic except we use the share of income Americans spend on essentials today, we would not get a poverty line of $31,000. Instead, it would be closer to $140,000. The simple reality is in a world in which in order to afford to rent or buy a home, you need a second income. Childcare becomes a very real component of it. We're actually seeing more and more households who are incapable of clearing that threshold for participation in the modern economy. The last 50 years has seen an extraordinary tax cut for the wealthiest Americans and an extraordinary tax hike for those in kind of the 20th to 80th percentile. Ignoring that is really at the core of the issue. And that would mean millions of people who consider themselves to be middle-class by the original definition and the original logic of the government are instead actually living in the modern day equivalent of poverty. And that's just crazy. So in this video, I wanna help explain how the article is arguing this and give you my thoughts. I think this is a super interesting story. So with that said, let's get into it. Hi, my name is Andre Jik. Hope you're doing well. Come for the finance and stay for the poverty line. Now, regardless of what you think about the actual number, it sparked a conversation. So full credit to Michael Green for sharing this. I'm gonna leave the article down below because it goes into way more interesting detail. Now, let me just sort of set the stage for how when the poverty line was first created, it made sense for the world of that time. Why? Because it was a time when one person's income could support a family of four and childcare costs weren't a thing because one parent stayed at home and insurance costs were usually covered by their job. Incomes also kind of grew with inflation and housing cost a fraction of what it does today. But instead of updating the formula as the economy changed, the government just sort of froze it in time. They never changed the core assumptions of what it meant to be poor once they defined it the way they did. They never added more categories like housing and healthcare. They did not want to adjust those spending ratios. Instead, what they did was they just adjusted the original number, which was roughly $3,000. And with inflation, every year they were like, let's just pump it up. Okay, that looks good enough. And that's why if you ask the government today, what does it mean to be poor at the poverty line? They would tell you that number is about $31,000 a year. And because of that, this 1960s formula is what became the foundation for almost every major government policy around things like welfare and assistance programs and food stamps and school lunches and even how we measure the success or the failure of the economy. And this is where the problem gets even crazier. Every major spending category that is our life today has completely flipped since the 1960s. Again, back then, food was the biggest household expense and housing was pretty cheap. Today, food is one of our smallest expenses and housing is the single biggest burden on most families. On top of that, healthcare costs have exploded. Childcare has become a full-time salary. Paying for insurance is now a mandatory thing. Everyone has to do it. Student debt has gotten out of control. And on top of all that, we have to pay more in taxes today than ever before. And none of this really existed in the original formula. Okay then, if all of that is true, then isn't that obvious? Why wouldn't the government update the old formula then, right? Well, it turns out they tried to a lot of times. They tried to in the 70s, in the 80s, the 90s, and even the early 2000s. Economists called the poverty line inaccurate and outdated. But changing the formula turned out to be politically toxic because if you update the poverty line to represent reality, that would then mean millions of more people would suddenly become poor on paper overnight. And if that were to happen, guess what the government would have to do? The government would be obligated to pay more assistance, spend more money, and acknowledge a very big economic crisis. And who wants to do that, right? And that brings us to the next question. If the old formula's broken, what would the poverty line be if we recalculated it using the same formula but with today's spending? Now, before I show you the map on that, I wanna thank today's sponsor, Public. Public just released something called Generated Assets and it brings AI into investing in a way that I really haven't seen before. And here's how it works. You type in an idea, like AI-powered supply chain companies with positive free cashflow, or defense tech companies growing revenue over 25% year over year. And Public's AI basically sends out a swarm of agents that scan the entire US stock market, evaluate every company, and build a custom index around your idea. And what I really like is how clearly it explains why each stock is included. And before you invest, you can even backtest your idea against the S&P 500 so you can see whether your idea would have worked so you're not just guessing. And beyond that, though, Public also lets you invest into stocks, bonds, options, and crypto all in one place. They'll even give you an uncapped 1% match when you transfer your portfolio over from another platform. You can check out Public at public.com forward slash Andre. Thanks again to Public for sponsoring this segment. The full disclosures are in the description. So there's actually two different ways to think about this formula. The first way is the original Orshansky way where she took the minimum cost of an essential thing, food, and divided it by the share of the household budget that it represented. And I know that kind of sounds confusing. So the easiest way to think about this is the essential thing multiplied by three. Back then, food was the thing they used. And because food made up 33% of the family's budget, the multiplier was three because 33 multiplied by three gets us close to 100, which is the whole budget. All right, so the poverty line was basically the yearly food expense, which was $1,000 a year multiplied by three equals $3,000. So if you made less than $3,000 in 1963, that meant you were at the poverty line. And that's what archives from the 60s show the poverty line actually was. Okay, today, food isn't anywhere close to a third of a family's spending, right? It's about five to 7%. And here's the part that seems really weird, but will make total sense to you. If food shrinks from 33% down to 6% of your budget, the multiplier does not stay at three. It becomes 16. Wait, what, how, right? It's completely counterintuitive because most people think, okay, if food is 6% of my budget, I've got a lot left over. But that does not mean you have 94% left over for everything else. What it actually means is that everything, housing, healthcare, childcare, transportation, all those other things have exploded relative to food. Food got smaller because the other essentials got bigger. That's why the ratio has to jump. So for example, let's say you spend $10,000 a year on food and food happens to be 10% of your yearly budget. So 10% compared to everything else you spend money on. So 10 multiplied by 10 gets us to 100, your full budget. Make sense? That's why the multiplier is 10. Okay, so $10,000 multiplied by 10 gets us to $100,000. That's what this person has to make more than to be considered above the poverty line according to Michael Green, because relative to food, everything else would be more expensive. Okay, Andre, none of this makes sense to me. Try again, right? So here's another example. Let's instead substitute food with another essential thing that is closer to what the 60s looked like. Now food was a third back then. Now it's not. What takes up a third for us nowadays, for most people? Rent, right? Their mortgage. In some cases, more than a third, but let's just use a third. So we know the multiplier, just like the 60s, is gonna stay the same. It's gonna be multiplied by three. Okay, so let's say you pay the national average of $2,000 a month for your rent. That's $24,000 a year. Multiplied by three, that would get us $72,000 a year to be above the poverty line. Michael Green argues, if you don't make more than that, and you pay that much for rent, that means you probably don't have much leftover for everything else, especially not much leftover if you want to invest. That right there is the easiest way to say the government is wrong about $31,000 because today's poverty is much higher based on another essential thing that is today that is relative to the ratio of another thing back in the day. That's method number one. Now, method number two uses the modern update that Michael Green, which is, I think, even easier, and instead of relying on ratios, what you're doing is you're gonna add up the actual cost of the things families cannot avoid paying for today because unlike the 60s, you don't just pay for rent. You also have to pay for childcare, which they didn't have to do on one income. You also need transportation and food, healthcare, which at that time was taken care of by their employers. And once you add up conservative national average numbers for those categories, the way that Michael Green does this, you do not get $75,000. You end up needing a net income of around $118,000 just to cover the basics for a family of four. After you add in roughly 18 and a half thousand in federal, state, and FICA taxes, that brings you to a required gross income of around $136,500 a year. That is the modern day version of Mollie Orshansky's too little threshold, the minimum needed to keep a family of four afloat in 2024. So to put this into perspective, the household median in the US today is about $80,000 a year. That's with two earners. But the moment both parents have to go to work, they trigger the $32,000 childcare bill because somebody has to watch the kids. The second worker then is not working to get ahead. They're working to pay the person watching their kids so that they can go to work. I think that might explain why so many young people are choosing not to have kids today. I can already see what some of the comments are gonna say. Well, I don't make $140,000 a year and I do just fine. And yes, obviously there's a lot of people that don't make $140,000 a year and still make it work. But this $140,000 number is not supposed to be luxury living. We're not factoring in iPhones and vacations and Starbucks. The calculation includes three things, modest housing, basic healthcare, and bare minimum childcare if both parents work. That's it. There's no luxuries, there's no extras. Now, the second comment I can see people say is, well, not everyone wants to have kids. And that's true. But the original poverty formula was not created for singles. It was created for a household. In the 1960s, every poverty threshold assumed a family structure. And childcare back then was covered by a parent that stayed at home because they did not need a second income. Today, that role costs anywhere between 10 to $15,000 a year conservatively. So if we're sticking to the original logic, childcare has to be included, which is also probably why people are choosing to have kids a lot later than ever before. Now, the third thing I can see people say is, well, just move somewhere cheaper. If you're a young person and you can't afford to live here, then maybe you should not live here. I mean, that is a real thing. I know that we've now grown up in a society that says that you deserve to live where you grew up. But the reality is that the history of America is almost literally the opposite of that. The history of America is you go to a place where there is opportunity. Now, here's reality. Even the cheapest states in the country now have a housing to income ratio that is historically very high. There's a national shortage of affordable housing. So moving across the country is not gonna magically fix the whole economic system where the price of shelter has grown faster than income for decades. Now, another thing I can see people say is, well, healthcare shouldn't be included. That inflates the number. But in the 1960s, healthcare was only about 5% of a family's budget. Today, between premiums and deductibles and out-of-pocket costs, it can take up to 15 to 20% of your income. And it's not an optional thing. You have to have healthcare. If the original formula included the biggest essential expenses of its time, then the modern calculation has to do the same. Another thing people might say is, the $140,000 number is inflated by big coastal cities. But this calculation actually uses national medians, not New York or San Francisco. If you used only major cities like that, the poverty line would be way higher. And maybe the biggest objection I could see is, well, you're just changing the definition to push a specific narrative. But this is literally the government's original poverty formula that they use today. It's the same logic. It is the same math. The only thing that's changed is the modern reality that I'm plugging into it. If the economy evolves, but the formula doesn't, then it doesn't make sense anymore. And obviously the last thing I can see people say is, the article was debunked because the author didn't use realistic numbers. And I think there's some truth to that because it really depends on your assumptions and your costs, which not everyone will agree with. But I think that's sort of missing the bigger point. All right, so if you made it this far, here's what I think. I think the reason that all of this matters is because without understanding how our reality looks in a way that's accurate, we will never be able to improve on anything. Especially because on paper, the government says things like, well, unemployment's low, inflation's coming down, the GDP is growing, the poverty line hasn't moved, right? So everything's fine. But none of these metrics describe the real cost of life in 2025. Like inflation, for example. Yes, it is slowing down, but that doesn't make housing cheaper. It doesn't erase the price increases over the last few years. Slowing inflation just means prices are not going up as fast as they used to. Not that they went back down. So when the government says inflation is under control, people look around and go, okay, but I'm still paying more for rent, more for groceries, more for childcare, more for insurance, and more for everything else. Or for example, if we look at things like unemployment, it's at historically low levels, yes. Which sounds great. But most people are not saying, do I have or don't I have a job? They're saying, does my job actually cover my life? And when their incomes have not kept up with the cost of housing or healthcare or college, then full employment, as economists like to describe it, doesn't translate to feeling like financial security. It just means people are working, sometimes multiple jobs even, and still struggling. Even if we look at the GDP, which economists love to measure, it doesn't necessarily reflect reality. Like the economy, for example, can grow because corporations are making more money. Because tech stocks go up because they're circulating money and passing it around to each other, which artificially increases their values. But the reality is, it did not increase what really contributes to growth, which is productivity. None of that tells you whether the average family of four can afford a house, save money, or get ahead. And looking at this, I think sort of explains how it's possible for the macro, which is the big picture things, to look amazing, while the micro, or the reality, doesn't feel as good as the numbers say they should. When the government tells you, the poverty line is $31,000, so if you're making more, you're doing great. But your rent is $2,000 a month. Health insurance is $1,800 a year. Childcare is $12,000 a year. So you start to think, am I crazy? Am I doing something wrong? Am I not watching enough Graham Stephan videos? No, you're not, right? The assumptions are probably wrong. And that brings me to the bigger problem. If the poverty line is outdated, and maybe the middle class definition is outdated, and economic indicators that economists measure don't reflect reality, then how do we measure that reality? What is the middle class? And here's the part I don't want you to take away from this video. This does not mean you have to make $140,000 a year to live a good life. The whole point of the number, which I think Michael Green was trying to make, is not to depress you. Instead, it's to show you that the system is using the wrong input, and that in reality, the real poverty line for a family of four is probably not as high as $140,000. But it's definitely not as low as $31,000 like the government says it is. So here's what I will say. If you've ever felt like you're not getting ahead, but you're working super hard, I don't think you're just imagining it. And there are things that I don't think we can control. For example, we can't control the price of housing. Can't control healthcare. Can't control inflation costs. Can't control childcare costs. We cannot control GDP or government formulas. But that doesn't mean you should just give up. You can still have control over your savings rate. You can control your investing habits. You can control whether you stay in the market or not, whether you automate contributions, whether you buy assets or liabilities. And here's something the government formulas do not account for. Wealth does not come from income alone. Wealth comes from time. It comes from compounding. And that has nothing to do with the poverty line. You could have a household making 40, 50, $60,000 a year. And if they invest consistently from age 25 to 65, they will end up with more wealth than a household making 150,000 that never invests at all. The old poverty formula can't measure that. It can't measure discipline. It can't measure financial literacy. It cannot measure what happens when someone decides to invest consistently for decades and decades. And that's why the most important lesson about money that I've ever learned, and the one I always think about, is to be informed and to be financially literate and to stay in the market and keep investing because it's the one thing that still works. It's the one thing that still builds wealth reliably. It's ownership. Ownership of literally anything that grows faster than inflation. The poverty line measures survival. And I think investing measures possibility. So yes, the old metrics are definitely outdated. And yes, life is way more expensive than it used to be. But here's the thing I want you to walk away with. Your financial future is not decided by any of this. It's decided by your habits. If you can build the right habits today, you can outperform people who make more than you. You can out-save them, you can out-invest them, you can out-compound them. That's the system you can take advantage of today. Having said that though, I would love to get your thoughts on what you think about all of this. And as always, I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. Please check out the article from Michael Green down below. I'd love to see you back here next week. I'll see you soon. Bye bye.