Importantly, public policy can play a role in helping families afford the goods and services necessary to meet their basic needs by reducing family exposure to cost increases in areas like health care (through Medicare, Medicaid, and the Affordable Care Act), childcare (through the Child Tax Credit and subsidized preschool), and food prices (through the Supplemental Nutrition Assistance Program). In some of the worst-case scenarios, parents may go hungry in order to feed their children, and an elderly individual may delay filling a prescription in order to afford their monthly rental payment. Those with young children will likely spend more on housing and childcare than those without, and elderly families will likely spend more on home health care and prescription drugs than will younger families. One can also argue that cellular phones have become a necessity for participating in modern society.ĭifferent categories of expenditures will be more relevant for different types of families. More recently, high-speed Internet access became a necessity for school-age children when COVID-19 forced schools to shift to remote instruction. For example, indoor plumbing was not always considered a necessity in a city apartment, whereas today it is the norm. In addition, our thinking about what constitutes a need can change over time. Because families face budget constraints and typically have no control over prices, important questions to consider as we think about costs are whether people are able to afford options that meet their needs, and what kind of trade-offs they may make in order to do so. As preferences or needs change, a family adjusts its spending on all sorts categories in order to maximize its well-being. Preferences, needs, and choices are fundamental to how markets work they also interact with prices. For example, the share a family spends on childcare could increase because the price charged by their childcare provider increases, because a family has a second child needing care, or because a family member loses their job and must accept a lower-paying job after displacement. These factors include family needs, preferences, and choices income and prices. The share of a family’s budget spent on any particular category of goods or services reflects a combination of factors that are both within and outside its control. This brief concludes by highlighting proposals in the Biden Administration’s Build Back Better plan that aim to address these costs for families. For example, Census estimates indicate that household incomes adjusted for the cost of living at the 95th percentile grew about 25 percent faster than incomes at the 20th and 50th percentiles between 19. This is especially true for those in the bottom and middle of the income distribution for whom incomes have risen more slowly than for those at the top. As a result, these families are more exposed to cost increases for necessities than others. While prices of some services and goods have fallen substantially, especially when bearing in mind increases in their quality, others-particularly prescription drugs, childcare, and education-have risen substantially, and in many cases, faster than incomes over the last several decades.Īlthough aggregate price indices track overall changes in the cost of living, some families spend a larger share of their budgets on necessities, depending on their income and needs. This issue brief examines some of the longer-run dynamics around the costs that U.S. Further, a 2019 Pew survey found that 35 percent of middle-income families frequently worry about paying their bills similarly, 37 percent worry about the cost of health care for themselves and their families. Researchers estimate, for example, that 80 percent of families saw the share of budgets dedicated to spending on needs such as housing and health care increase by more than 7 percentage points between 19, potentially crowding out spending on other categories like leisure, longer-term investments in education, and saving for retirement. Over the last three decades, American families have experienced a rise in the costs of many necessities that has made it difficult for them to attain economic security.
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