Author Topic: Imaginary case study  (Read 3904 times)

Mr Dumpster Stache

  • Stubble
  • **
  • Posts: 142
Imaginary case study
« on: June 01, 2016, 08:26:28 AM »
My facebook friend challenged me with this hypothetical "case study" with the comment, "Ok, how does this lady become a millionaire?" I am going to take a swing at it, but I figured I would give y'all a chance.

Quote
Yesterday my friend Jeff Langloss replied to a comment on one of my posts suggesting that anyone can live on any wage if they are only willing to let go of their "wants" and only spend money on what they "need". I decided to take this as a challenge to see if he was right, and I recruited my friend Abe Clabby to help me.

The numbers we found were actually pretty bleak. We can all have different ideas on how to address the problem of poverty in America, but as Christians (which is the majority of my friends list still), we have a biblical MANDATE to care for widows and orphans and the oppressed and the poor. It's all the way from the Old Testament to the New. Proverbs to Paul.

So without further ado... The numbers.

I asked Abe to start out with a single mom with a one year old child. We're assuming that the dad walked out or passed away and in either case is providing zero financial support, and there is no other extended family available to help with child care or finances.

She has to stop being a stay at home mom, put her child in day care, and find a job... What might that look like for her?

(What follows is what Abe posted, I got his permission to share it here.)

"Chelsea got me to crunch some numbers today on how much it costs to live at the poverty line in America. I could have just found some on the web, but I decided to draft them myself for Austin, one source at a time. Here are the results:
COST of LIVING for a SINGLE MOTHER (with 1 Child: 1 Year Old)
INCOME: $1335/month ($16,020/yr, exactly on poverty line for 2-person household)
EXPENSES: (choosing Wifi (no Smartphone), Obamacare, Medicaid, Bus (No Car), and only paying of monthly interest on student loans)
= $1800.50/month.
Not even breaking even.
(explained below)

RENT: $800 (includes water, sewer, trash collection) (in Austin) (just above lowest price found for 1bedroom)
UTILITIES: $65 (average for Abe's apartment throughout the year)
DAY CARE: $450 (averaging $300 (babycenter) and $600 (costhelper.com))
PHONE BILL: $50 (assuming phone was bought in advance, which cost more if it was a smart phone, required if using Internet: Phone Data Plan below)
INTERNET:
$50 WiFi for Home (unlimited but home-based)
OR
$50 Phone's Data Plan + Fees for Surpassing Data Cap (using library or work / business WiFi as needed) (ConsumerReports)

HEALTH INSURANCE:
>Hers:
~$75 'Obamacare' lowest-coverage plan (ranging from $50 to $100; even higher deductible)
OR
$400 Private (may be subsidized by job, deductible may still be $1000's not saving money on most medical expenses except in emergencies)
OR
~$60 Penalty for No Coverage (~$600/yr penalty is better-known, may be waived for low-income) (pay full cost for all illnesses, accidents, preventative care, checkups, etc)
>Child's:
$2.50 (Medicaid ($10/visit, averaged))
OR
Private ($500/month)
OR
~30 Penalty for No Coverage (see Insurance: Hers for details)

FOOD: $100 ($3.30/day per food)
BABY FOOD: $60 (BabyCenter)
DIAPERS: $45 (estimates ranging $30 to $60 a month, costhelper.com)
BABY EVERYTHING ELSE (not included; bridal and baby showers may provide some
TRANSPORTATION:
>Transportation $40/month Month Bus Pass (in Austin) if bus travels from home to work, not found in smaller towns or transportation-less areas such as North Austin
OR
>Car:
$100/month Auto Loan (5-year plan for $5000 car, chosen for lower mileage (longer-lasting), higher resale value, higher MPG, lower maintenance - cheaper car is optional but would not save money in these ways)
+ $120 Car Insurance (based on Abe's rate, lowest on the market)
+ $45/month Gasoline ($2/gallon (won't be this cheap forever and it helps that this is Texas) x 20 mpg x 100 miles/wk, if work is 5 miles away and travels 50 miles/wk for all other errands)
+ $50 Misc Repairs (oil changes + regular maintenance + emergency repairs costing several hundred, common in older or cheaper cars)
STUDENT LOANS: Never Less than $113/month (average 2013 graduate owed $35,200, 3.85% was 2013 graduates' interest rate (most graduation years are locked at higher interest, ex: 2012 was 6.8% for federal student loans, so debt grows by $113/month, if students pay exactly this they will have the same amount of debt again one month later, payments must exceed this to pay down debt)

slappy

  • Pencil Stache
  • ****
  • Posts: 689
Re: Imaginary case study
« Reply #1 on: June 01, 2016, 08:30:06 AM »
If her income is that low, she will likely receive rent and daycare assistance, and possible food stamps/WIC. I'm not familiar with the income limits on assistance programs, but I'm sure she would/could receive assistance.

bacchi

  • Magnum Stache
  • ******
  • Posts: 3720
Re: Imaginary case study
« Reply #2 on: June 01, 2016, 09:10:41 AM »
She'd get Section 8 assistance but the wait list is way long. The kid will be in school before she sees that check.

She'd get WIC but that's probably already factored into the $100/month food bill.

1) Phone bill at $50? She can do much better.
2) Internet can be had for ~$20.  http://mygrande.com/internet
3) She's going to need a roommate. I see 2 bedrooms in the central city for $1200.
4) Austin provides child care assistance. http://www.austintexas.gov/childcare
5) Austin provides utility bill assistance.


mozar

  • Magnum Stache
  • ******
  • Posts: 2904
Re: Imaginary case study
« Reply #3 on: June 01, 2016, 09:42:52 AM »
There is more to the story like education level and immigration status. There are some posters on the forum who went from being poor single mothers to very successful. Maybe do a call for their stories? I'm not sure what your buddy Jeff is trying to get at but I suggest he read the two income trap by Elizabeth Warren.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10331
  • Location: la belle province
    • Here's how you can support science today:
Re: Imaginary case study
« Reply #4 on: June 01, 2016, 09:54:12 AM »
I get we are trying to tackle a 'very bad' life situation here, but why are we assuming that her income is fixed at just above $7.50/hour?  That's barely above the federal minimum wage, and assumes she works no overtime. She ahs student loans so clearly she has at least some college training)

As others have said, she's almost certainly eligible for WIC and other assistance programs, and she would pay $0 in federal taxes, and most likely $0 in state taxes too.

Step 1: find a job that pays at least $9/hour
Step 2: work more
results from 1 & 2: compensation now approaches $2,000/mo.  Still poor, but much better.  As outlined by bacchi her expenses can be brought down somewhat.  Also, she'd qualify for SL IBR leading to loan forgiveness, so that's a non-issue as long as she's earning peanuts.
Contribute $75/week towards an IRA and she'd be a millioinaire in about 42 years.  That's not great, but it can be done, especially given the savings and financial support outlined here and by others.

little_brown_dog

  • Pencil Stache
  • ****
  • Posts: 915
Re: Imaginary case study
« Reply #5 on: June 01, 2016, 10:02:11 AM »
I used to work with women in similar situations - they were getting the maximum public assistance, were living very modestly, but still came up short every month. Many of them had 2nd jobs if they had a family member or friend who could take the baby at night. There is no way you can frugalize your way out of these types of situations. You need more income, period. Sometimes the 2nd jobs were illegal, like prostitution. A lot of street prostitutes and even high end call girls work other legitimate low wage jobs during the day. When you are a mom, you will do anything to keep your baby fed and safe. If this hypothetical mom is good looking and is willing, she might benefit from the oldest profession. Or in all seriousness, she may want to start dating asap to see if she can find a partner to help her. Women gotta do what they gotta do, and sometimes that means using their physical appearance and body as a resource. Working with poor women completely changed how I viewed sex work and the people who do it, as well as the women who "marry up" for financial security.
« Last Edit: June 01, 2016, 10:15:14 AM by little_brown_dog »

StockBeard

  • Pencil Stache
  • ****
  • Posts: 636
  • Age: 37
    • How To Retire Early?
Re: Imaginary case study
« Reply #6 on: June 01, 2016, 04:28:21 PM »
Yup, doesn't look like this person can become a millionaire. I tend to disagree with  people who say that anyone can make it happen. With that being said, for the sake of the exercise, a few expenses could be further reduced:

1) There's no need to live in a big city if the goal is to be paid minimum wage. $800 for a 1 bedroom apartment is considered a ripoff in most places I've lived in, including the Tokyo area. Arguably, can she make do with a studio? Can she get a roommate who would be ok with the baby? This number can easily go down to $500 by going to something smaller, or a smaller town, or taking a roommate.
2) The phone bill is too expensive. I pay $30 a month for unlimited data with T-mobile, so that's what I would set as the "high" bar here. Same for the Wifi plan. Does she need both? I'd say cut the home internet, get an "all data" plan on a cheap provider like T-mobile, $30 a month instead of the suggested $100 a month
3) Diapers. (Do what I say not what I do): switch to cloth diapers, save $40 a month?

If I calculate correctly, I've reduced the bill by $410. She's now at $1390 expenses a month for a $1335/month income. It is still negative financially, and I'm not claiming it's a fun lifestyle by any mean.

Quote
there is no other extended family available to help with child care or finances.
Not even a good soul in her extended family who could take her and the child for minimal rent for a couple years? That could dramatically reduce the main expense here. Not childcare, not finance help, but a place for minimal rent.

Choices

  • Pencil Stache
  • ****
  • Posts: 516
    • ChooseBetterLife
Re: Imaginary case study
« Reply #7 on: June 01, 2016, 08:29:54 PM »
I agree that it isn't easy and it's even tougher without family support. However, there might be more options than those already presented.

As stated, the phone bill can be lower with Pure Talk or others and wifi could be decreased or shared with a neighbor or roommate. A good roommate situation would help a lot with shared rent and utilities and maybe even shared child care. Perhaps she could live with an elderly woman who needs help around the house in exchange for reduced rent. Maybe she could even use the car in exchange for driving the elderly owner on errands. Maybe a neighbor stays at home with kids and wouldn't mind one more during the day in exchange for babysitting on weekends or house cleaning help.

This also assumes that her wages are stagnant, which should not be the case, especially as she has student loans implying some higher education.

It's commonly said that it takes a village to raise a child, so here's my take: it takes a village to be a village. We're all in this together and we give and take, we lean on our friends and we support them.

ubermich

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: Imaginary case study
« Reply #8 on: June 01, 2016, 09:15:13 PM »
I get we are trying to tackle a 'very bad' life situation here, but why are we assuming that her income is fixed at just above $7.50/hour?  That's barely above the federal minimum wage, and assumes she works no overtime. She ahs student loans so clearly she has at least some college training)

As others have said, she's almost certainly eligible for WIC and other assistance programs, and she would pay $0 in federal taxes, and most likely $0 in state taxes too.

Step 1: find a job that pays at least $9/hour
Step 2: work more
results from 1 & 2: compensation now approaches $2,000/mo.  Still poor, but much better.  As outlined by bacchi her expenses can be brought down somewhat.  Also, she'd qualify for SL IBR leading to loan forgiveness, so that's a non-issue as long as she's earning peanuts.
Contribute $75/week towards an IRA and she'd be a millioinaire in about 42 years.  That's not great, but it can be done, especially given the savings and financial support outlined here and by others.

Temporary devil's advocate:
Your solutions here are not viable for many single mothers (or fathers) because of child care.  Her work schedule is dictated by the child care work schedule, which means she can't work more.  And since her work hours are so limited she is not likely to break $8/hr in most uneducated jobs.  The education thing is a pretty big question mark, but perhaps we could assume the worst case scenario: she was half-way through a degree like graphic design at UT when she got pregnant.  This would leave her with a less-than-helpful degree and lots of student loan debt. 
</devil's advocate>

I guess the caveat here would be that the loan payments could be deferred or forgiven depending on whether they were private or public.

Private loans: bankruptcy?
Federal loans (subsidized or unsubsidized): she could defer payment based on her income level.  (myfedloan.com even has a link on the main login page that says "I can't afford my payments.")

As for the other expenses:
At the poverty level medicaid is covered for the mother and CHIP covers the kid.
The phone is free with an Obamaphone*
Transportation must be bus or walk.  The good news is at minimum wage she will have an easier time finding work close to home.
Sometimes in low income apartments there is a "not daycare" where many children congregate during the day and parents occasionally give money to a person who lives there (illegal/unregistered daycare).
WIC and food banks
Talk to local churches

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6257
  • Location: BC
Re: Imaginary case study
« Reply #9 on: June 01, 2016, 11:58:05 PM »
Hey!  I just listened to this.  Nearly identical to your question, but answered with a real example, showing how she makes it...

Single Mom, NY, earns $16 k per year, does not accept AARP or "Welfare" but does get child care and WIC.

Episode 217: The Art Of Living At The Poverty Line
May 25, 2016 Meet a single mother who makes $16,000 a year and managed to fund a vacation at a Caribbean resort with an interest-free loan from one of the world's largest banks.

http://www.npr.org/sections/money/2016/05/25/479349851/episode-217-the-art-of-living-at-the-poverty-line

Check it out!

Guesl982374

  • Pencil Stache
  • ****
  • Posts: 501
Re: Imaginary case study
« Reply #10 on: June 02, 2016, 08:17:38 AM »
Two suggestions:

1) Side Hustles that she can do with the baby or from home after the baby goes to sleep. If she's living in Austin, TX, she most likely speaks English and she's got access to the internet so she could learn a skill at night/make money on line at night to increase her overall income. At $16K/yr every $50-100 matters and should be worth her time to earn.

2) Build an "extended" family around her and her child. I have a family friend who's parents immigrated to the US with no family here and over the years built up strong relationships with people who ended up being like grand parents and aunts and uncles (they even called themselves as such). This would enable support whether it be temporary child care, cheap rent, connections to better paying jobs, etc.

It won't be easy or fun and will require true sacrifice and hard work but it can be done if the person is motivated.

slappy

  • Pencil Stache
  • ****
  • Posts: 689
Re: Imaginary case study
« Reply #11 on: June 02, 2016, 08:29:00 AM »
Assuming she doesn't have any more children, the child care costs will eventually drop and then she can save more of that money.

MrsPete

  • Magnum Stache
  • ******
  • Posts: 3519
Re: Imaginary case study
« Reply #12 on: June 02, 2016, 09:00:33 AM »
You've really set this hypothetical person up in every way -- you're giving her car payments, student loans, a child still in diapers -- the only thing you didn't heap upon her is special needs twins.  I've been poor and have known plenty of poor people; most of them have multiple problems that "hold them down", but pretty much no one has all these issues.   

This hypothetical woman:

- went to college (maybe didn't graduate), yet she's working for near-minimum wage.  Not realistic.  If she was smart enough to get into college, she should have enough gumption to at least be a manager at a fast food place -- and that's going to pay more than she's earning now. 
- is going to be qualified for some financial aid from the state -- medical, rent, food -- something. 
- is young enough that she still has a baby in diapers, yet Dad is gone-gone-gone (and she isn't seeking child support through Social Services, nor -- if he's dead -- is she collecting Social Security).  Even if he's not a pleasant person, this isn't realistic.  At the worst, he might be in jail; that'd prevent him from working, yet disqualify her from death benefits for her child.  Possible, not not likely. 
- has no family willing to help her, nor is the child's father's family willing to help her.  Not realistic.

If this hypothetical mom is good looking and is willing, she might benefit from the oldest profession. Or in all seriousness, she may want to start dating asap to see if she can find a partner to help her. Women gotta do what they gotta do, and sometimes that means using their physical appearance and body as a resource. Working with poor women completely changed how I viewed sex work and the people who do it, as well as the women who "marry up" for financial security.
Awful advice.  Add the inevitable STD to this situation, and she'd actually lose money -- all while risking her safety.  Trying to "marry up" sounds more realistic, but women who are trying to accomplish that usually come off as desperate (because they are), and they attract the wrong type of men -- again, more trouble.  Could be another child whom she can't afford to support. 

No, she's better off seeking to better herself and earn more income. 

For example, you can become a CNA in a week, and they're hired everywhere -- home health care, nursing homes, hospitals.  That job pays $10-12 (my just-graduated daughter did it during college, and they would've worked her 40 hours a week, if she'd been willing).  If she did well at it at a hospital, they'd pay a portion of her education to move towards an RN degree; she wouldn't be able to go full-time, but she could earn an Associates in probably four years. 

Another option:  She could become a teacher assistant.  It'd be predictable hours, would give her access to lower-cost day care, and she could add a summer job on top of it. 

Does she have every option in the world?  Of course not -- and she'll probably never become a millionaire, but she also doesn't have to stay in her current predicament. 

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8520
  • Registered member
Re: Imaginary case study
« Reply #13 on: June 02, 2016, 11:03:36 AM »
Yeah, I don't think anyone holds the position that no matter how bad decisions you make (student loans with poverty-line earning potential?), how many bad things happen to you (husband died/left, parents are dead, all relatives are jerks or dead, no friends to take care of child), or generally how big of a hole you dig yourself (anyone in massive consumer debt) that there is a clear way to become a millionaire.  That's why we have safety nets in place -- to keep these people alive.

That said, she shouldn't have to pay the student loans on "income based repayment."  Federal loans are forgiven after a set number of years (20?) so she can pay the minimum payment ($0) for 20 years and lose the debt.  If private, bankruptcy.

She has to be more flexible on housing and child care.  I'm sure she could find some old lady she can move in with who will watch  the kid and split the rent.  It's not a guaranteed option, but it's the best bet.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3404
  • Age: 36
Re: Imaginary case study
« Reply #14 on: June 02, 2016, 11:28:36 AM »
Pretty much agree with everything everyone else said regarding this hypothetical mom maybe not getting rich, but able to get by.  And also being very, very hypothetical - college educated single mom with no prospects beyond minimum wage and no support system of any kind?  And going to remain this way forever?

Also add that the EITC and child tax credit will go a long way for this hypothetical mom.

Basically, this person is exactly who all of the welfare programs we have are made for.