Chips with Everything
It is a fallacy to claim the poor just need financial advice to improve their lot.
Listener: 10 April, 2014.
Keywords: Distributional Economics; Social Policy;
I was working on a standard-of-living case and was shown figures prepared by an approved budget advisory service for Meg and her daughter Stacey (I have simplified some detail and changed their names). Meg’s chronic health condition ruled out paid employment, so she was on a benefit.
The budget recorded the family’s 2012 weekly income as $484 and proposed the following spending:
• Food: $130 for simple but nutritious meals recommended by the University of Otago Department of Human Nutrition.
• Housing: $119 for a state house at a subsidised rate.
• Household energy: $40 – the house was neither warm nor in a good shape; it may have been condemned shortly after – sewage flowed outside when it rained.
• Medical and educational costs: $53, despite our providing “free” health care and schooling.
• Transport: $97 – high because the house was badly located and they needed to travel for health care.
• Phone: $26.
These amounts total $465, leaving just $19 a week for everything else, including clothing and footwear, entertainment, recreation, dental care, consumer durables, insurance and a variety of things that could be considered normal, such as haircuts, presents, school trips and pets. There’s no allowance for alcohol or tobacco, you’ll note.
There is an uninformed view that all such people really need is financial advice. Meg got it. Few do-gooders’ ideas for reducing poverty are relevant. The conclusion from the budget is that poor families have insufficient income to lead a decent life.
How did Meg and Stacey cope with this limited existence? There were some small gifts from various sources but they were not enough. I got the impression that they skipped some of their medical needs, but the big saving was on food. Meg said she usually spent $40 to $80 a week – well below the recommended level.
Meg admitted they depended on chips, even though she knew they were not healthy. It turns out chips are the cheapest way to fill one’s belly. They put off hunger, leaving some cash for other necessities. But Meg and Stacey were not eating nutritiously.
What of the prospects for 14-year-old Stacey? She is badly fed, lives in unhealthy housing, skips some health care and is socially excluded by being able to spend much less than her school friends. These compromise her education, as does the lack of funds for the ongoing charges schools place on today’s kids.
Let’s skip 20 years into the future. Stacey will probably have poor health, which will limit her work effectiveness – if she is in the workforce, for she is more likely to be unemployed or a beneficiary.
We should not be surprised if she fails to be educated to her full capabilities, again reducing her workforce productivity. We can be reasonably sure, too, that Stacey will be a bigger user of state assistance: higher public health costs, more use of benefits and – I hope this does not happen to this young woman – more likely to be involved in criminal activities or be incarcerated. We talk of New Zealand being a land of opportunity. Not for Stacey.
It is difficult to blame Stacey for her gloomy prospects. They are shaped by her impoverished family circumstances. I leave you to blame her parents or the state welfare system (or both); Stacey has little influence over either.
There has been increasing research based on international comparisons suggesting that high inequality is related to poor economic growth. This will surprise those who insist that the higher tax rates needed to reduce inequality reduce output. We can see in Stacey’s prospects how inequality can lead to lower economic growth. That effect probably overwhelms the impact of higher taxes.
Children are a social investment. If we underinvest in them we compromise future economic productivity and wider national prosperity, while adding to the future costs of welfare and justice. Depending on where the line is drawn, there are about 200,000 New Zealand children living in poverty. They – and Stacey – deserve better.