1. Differences in cost of living
The official federal poverty rate does not take into account where people live, which means that families living in Hawaii and Mississippi are assessed the same, despite the large difference in the cost of living in the two states — goods and services are 18% more expensive in Hawaii than national average prices and 14% less expensive in Mississippi.
2. Financial support from family members
Because the official poverty rate only looks at pre-tax annual income, it does not take into account whether an individual has a safety net should unexpected costs occur. Individuals who can borrow or rely on gifts from their parents or family members if the need arises do not face the same economic risk as those who cannot.
While the federal poverty rate considers income from investments, dividends, and interest, it does not take into account other forms of wealth, such as funds available through savings. Two individuals with incomes below the poverty threshold would each count as poor, even if one has $100,000 in savings and the other has no savings.
4. Child support payments made
When it comes to child support, it seems the official measure neglects one party. While the measure factors in income received from child support payments, it does not consider the child support payments a parent makes, nor does it account for alimony payments made.
5. Income and payroll taxes
The official poverty rate does not account for taxes of any kind, including income taxes and payroll taxes. While some Americans pay a substantial amount of their annual income in income taxes, others live in states that have no personal income tax and pay much less in taxes.