United Way, a nonprofit organization that provides a variety of services to local communities, among other things, sponsors and publishes research that measures how many households are above the official poverty level but still struggle financially. This is an important question, as better understanding this population could help identify and target appropriate interventions or support systems. The organization’s intent is a good one, and we are supportive of this effort and the general mission of the United Way. In fact, we have both financially supported local United Way chapters. Unfortunately, United Way’s research on this issue is methodologically flawed, misleading and does not help inform the public or policymakers about how to help these households.
“ALICE” is an acronym for “asset limited, income constrained, employed.” ALICE reports are a series of publications released every couple of years by United Way that estimate how much certain households spend annually on a variety of goods and services and compares that amount to reported annual household income. The goods and services included are meant to represent the annual costs of “basic necessities” and include housing, food, transportation, child care, health care, taxes, smartphones and more. The percentage of households with annual income below these estimated costs but above the official federal poverty level are labeled ALICE and are said to be unable to afford “the costs of household basics.”
The number of ALICE households identified in United Way’s published reports is surprising. For instance, based on 2019 data from Michigan, households consisting of multiple people are said to be unable to “afford household necessities” if they earn less than $64,116 in annual income. For single adults living alone, this amount is $23,400, and for a single senior citizen, it is $26,224. In 2019, 38% of Michigan households had incomes below these “survival budgets,” as the report calls them. In other words, more than a third of Michigan households do not earn enough income to survive.
Oddly, this research does not identify the portion of households that meet the ALICE definition. In fact, despite the acronym, the methodology does not even attempt to measure asset limitations, income constraints or employment levels of the population it purports to study. The reports do not offer evidence that households labeled ALICE have these characteristics — they simply assume that they do. The research amounts to merely calculating how many households earn below a certain threshold and then declaring that all of these households, regardless of their size or circumstances or needs, have limited assets, constrained income and are employed.
The thresholds are developed by creating hypothetical household budgets. These are estimated for just three scenarios: single adults under 65 living alone, single adults 65 and older living alone and families of four consisting of two adults and two young children. The hypothetical budgets are constructed using data about average spending on certain goods and services. All households must meet these spending requirements, even if they have no need for such items or can meet their needs by purchasing these goods and services at a below-average cost. As such, the ALICE methodology exaggerates the minimum costs required to meet the basic needs of most households.
These reports also rely heavily on unsupported assumptions, use calculations that misestimate their target population and, at times, mispresent their own findings.
This study reviews the ALICE reports and explains several problems with the methodology. It also demonstrates how these results have been misinterpreted and misused in the media and elsewhere. Ultimately, the ALICE reports fail to provide a valid estimate of the financial situations of the people it intends to study and does more to mislead policymakers and the public than it does to inform them. As such, these reports distract from the real needs faced by households that struggle to make ends meet.