True
Living Cost
Increase 2001–2021

78.8%

Minimal Adequate Needs*
* As defined below by the Ludwig Institute for Shared Economic Prosperity (LISEP)
Headline
Inflation Metric
Increase 2001–2021

54.4%

Consumer Price Index*
* As defined by the U.S. Bureau of Labor Statistics

What Is the “True Living Cost (TLC) Index”?

The TLC Index is a cost-of-living metric that provides a more accurate picture of the economic reality for median- and lower-income (LMI) families.To determine the TLC, LISEP tracks changes in prices for the essential items and services that individuals and families need to maintain a basic standard of living.

These are the key differences in the methods used to calculate the CPI and TLC:

Medical Care
The portion of CPI for  medical care largely ignores healthcare premiums — which makes up the majority of a medical budget in most households. For the bottom 60% of American Households, health insurance premiums account for more than 70% of all medical costs. The CPI instead focuses on the prices paid by the insurance companies, which is irrelevant for Americans’ budgets and spending.
Housing
CPI’s housing portion allocates less than 25% of the cost to rent, thus assuming a majority of Americans own their home. But for the bottom 60% of the U.S. population by income, only about half were homeowners in 2020. Making the issue even worse, the housing CPI relies mostly on surveys of homeowners’ estimates of the value of their own home. Alternatively, the TLC uses actual rental prices.
Technology
CPI for technology does not account for the fact that technology has gone from being a luxury to a necessity. The CPI attempts to price, for example, the cost of checking email. But it doesn’t consider that Americans are now expected to be able to do this instantaneously, whereas this was not the case 20 years ago. This paradox is reflected in the fact that from 2007 to 2018, the newest iPhone release price went up 100% while the CPI for telephone hardware went down by more than 50%. The TLC index instead considers the minimal amount of technology that families need to function in society in any given year, and then prices this bundle throughout time.
Transportation
CPI for transportation accounts for all transportation-related goods, including boats, new cars, and airline fees, which are largely irrelevant to middle- and low-income families. The TLC Index takes into account the price of only the necessities, including gas, used car prices, and regular car maintenance.

For a more in-depth explanation of the True Living Cost, please reference this white paper.

Why Does It Matter? Using the TLC in place of CPI to assess the changes in cost of living for LMI households would significantly alleviate their financial burden by better adjusting pay, pensions, and government transfers.

Median Earnings for a Full-Time Worker, Adjusted by TLC

In 2020 Dollars

When considering the most critical items the median earner needs to buy, buying power has decreased since 2001 by 6.3% (Median Earnings adjusted by TLC). The CPI, however, shows an increase in buying power for the median earner of 9.4%. Policymakers looking at CPI might believe that Americans are earning more and thus are able to purchase more necessities. But LISEP’s TLC Index shows the opposite is true: Americans are struggling more than ever as rising living costs have eaten away at earnings.

Select any point on the chart to see the data for that year.

True Living Cost vs. Consumer Price Index

Increase Since 2001

Percentage change in cost of living as measured by the TLC exceeds the CPI every year since 2001.

Select any point on the chart to see the data for that year.

Income Left After Meeting Minimal Adequate Needs

Annual, 2001–2021.(1) LISEP assumes each adult is a median earner, and couples comprise a dual-earning, median-income household.

For each household type, LISEP shows the amount of income remaining after meeting minimal adequate needs and paying taxes from 2001-2021. This is before any savings or spending on recreation. In certain scenarios, borrowing is necessary just to meet the household’s minimal adequate needs.

A Hypothetical American Budget – 2019 Example
Molly, a full-time veterinary technician from Richmond, Va., lives alone. She made $35,000 in 2019, about three-fourths the median full-time wage that year. After meeting her minimal adequate needs and paying taxes, she had $2,760.
If she saved nothing, she could afford to adopt and take care of a dog.
A Hypothetical American Budget – 2019 Example
Terrance, of Durham, N.C., is a full-time mechanic and single father of an 8-year-old. He made $35,000 in 2019, about three-fourths the median full-time wage that year. After meeting his family’s minimal adequate needs and paying taxes, he has nothing left, and is in debt for $15,176.
He is unable to pay for any sports for his daughter or eat one meal at a restaurant.
A Hypothetical American Budget – 2019 Example
Tara, of Pittsburg, Calif., is a full-time security guard and single mother of two young children. She made $62,500 in 2019, about 30% more than the median full-time worker that year. If she meets her family’s minimal adequate needs and pays taxes, she will be $2,389 in debt.
She cannot afford to take her kids to a movie or a sporting event.
A Hypothetical American Budget – 2019 Example
Aniyah, a single mother of three, is a 20-year U.S. Army veteran living in Weaver, Ala. She made about $50,000 in 2019, which is about the median full-time wage that year.
To meet minimal adequate needs for herself and three children, she would need to take out $20,594 in debt.
A Hypothetical American Budget – 2019 Example
Madison, a court clerk, and her husband, Jackson, a mechanic, live in New Brunswick, N.J. They don’t have any children, and they make $75,000 as a household (more than the median household income of $67,000). After meeting minimal adequate needs, they have about $20,600 left.
With this, they can choose to forgo all recreation and put a 10% down payment on a 900-square-foot condo.
A Hypothetical American Budget – 2019 Example
Paige, a high school teacher, and William, an ambulance driver, live in Albuquerque, N.M. They have one son and make a combined $77,000 as a household (more than the median household income of $67,000). After meeting minimal adequate needs for the family, they have about $3,250 left.
If they choose to forgo all savings, they can afford to go out to eat once per week at a chain restaurant and a basic cable package.
A Hypothetical American Budget – 2019 Example
Owen, of the Bronx, N.Y., is a full-time carpenter for a construction company, living with his spouse and two kids. In 2019, his family made about $62,500, just shy of the median household income that year for anywhere in the U.S.
To meet the family’s minimal adequate needs, Owen and his spouse will need to take out $15,348 in debt even before accounting for higher living costs in New York City. They cannot afford any recreation.
A Hypothetical American Budget – 2019 Example
Tiana, a nursing assistant, and a Carl, a paralegal, live in St. Cloud, Minn. They have three daughters. They made a combined $80,000 in 2019 (which is more than the median household income of $68,703).
They need to take out more than $6,000 in debt to meet their minimal adequate needs. They cannot afford recreation, or to save for retirement or their children’s education.
  1. In 2020, a number of fiscal policies temporarily impacted Americans, including stimulus checks and increased unemployment benefit programs. Because of these temporary programs, the tax burden on all family types dropped substantially, but only temporarily, which skews the data.

  2. These are approximated average salaries of people who live in these specific cities and hold the listed occupations. We use the real tax and transfer rates at the federal and state level for their given state of residence. Their spending decisions are equal to the cost of the minimal adequate needs we determined. Names and photos are fictionalized.

  3. Median earnings for full-time workers was $47,684 in 2019. Median household income was $68,703 in 2019.

True Living Cost by Expense Category

Increase Since 2001

LISEP shows the percentage change in price over time for each category of minimal adequate needs faced by a median-income family of various household sizes. For instance, housing costs for a couple with three children have increased 163% between 2001 and 2021.

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Couple with

3

Children

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Federal Poverty Rate vs. Percentage Unable to Meet Minimal Adequate Needs

2021

The poverty rate, as defined by the U.S. Census Bureau, significantly underestimates a family’s ability to meet minimal adequate needs for every family type in 2021. Because many federal programs are contingent on poverty status, many people are currently being left without help.

Select any point on the chart to see the data for that category.

LISEP’s True Living Cost (TLC) Index

The TLC assesses a set of minimal adequate needs that a household requires to function: housing, medical care, transportation, food, childcare, technology, and miscellaneous (e.g. clothing and personal care items) that takes into account household size (the eight household sizes range from one to two adults and zero to three children) and census region (Northeast, Midwest, South, and West). The TLC tracks change in price for this minimal bundle over time.

As a comparison to the TLC, the Consumer Price Index (CPI) measures rising prices. The CPI better serves as an inflation metric rather than a cost-of-living metric due to the inclusion of luxury items and by only including the urban population, among other issues with the CPI. Thus, the CPI distorts the reality of changing costs faced by most consumers. LISEP found that the CPI drastically understates changes in living costs for LMI families — the TLC rose nearly 1.5 times faster than the CPI since 2001, 78.8% compared to the CPI’s 54.4%.

For a more in-depth explanation of the TLC index, please reference this white paper and abridged version, as well as this documentation of LISEP’s methodology.

Why Does It Matter?

Using the CPI as a cost-of-living metric has material implications for the well-being of American households.

Increases in pay, retirement, and Social Security are tied to the CPI. More than 15 federal assistance programs, such as the Child Tax Credit (CTC) and veterans’ pensions, are indexed to some iteration of the CPI in part or in full. This means that American households receive benefits that are not commensurate with the cost of living they face, and thus are worse off over time. This mismeasurement of the rising cost of basic needs poses a financial crisis for many families, making the American Dream further out of reach. Indexing government benefits and pay increases to the TLC would substantially correct for this mismeasurement and alleviate the financial burden of LMI families.