What is a Basic Necessity Percentage?
Depending on where you live, the number of people in your household, or even how old you are, the cost of basic needs can vary by a lot.
A Basic Necessity Percentage, or BNP, is a number ranging between 0 and 1 representing a household’s ability to afford basic needs. BNPs provide household’s with a minimum sufficiency level for costs associated with food, clothing, household and personal care, financial obligations such as taxes, court ordered payments and child care for dependants under the age of twenty-one (21).
Compared with age old “rules-of-thumbs”, and other measures of affordability and income inequity, that rely on percentages with no empirical support, BNPs provide a realistic measure of a household’s purchasing power based on its income, location and size at a point in time.
Household BNPs can increase or decrease based on household size, age, location, income, sex, and disability status.
Making, and sticking to, a household budget can be a daunting task. However, budgets can serve as a useful tool for households, or an individual, to stabilize their finances and save towards experiences.
With constantly fluctuating food, transportation and shelter costs, it’s sometimes only possible for household’s to plan for short-term foreseeable expenses; neglecting the long-term.
Household BNPs rely on pricing trend indicators to predict future households expenditure growth. During periods of high inflation, households can expect to see lower on average BNPs. With monthly calculator data updates, it is encouraged that households complete regular monitoring as sudden changes to basic needs costs or income impact household budgets immediately.
You’ve heard of the “50/30/20” budgeting rule! Sure it’s easy, but is it practical to live by?
“rule of thumb” and it’s derivatives.
While income can play a big part in a household’s ability to afford basic needs to a minimum sufficiency level, household size and location are equally, if not arguably the most influential factors of expenditure. Research has shown that as household size increases, if income remains unchanged, the amount of money spent on goods and services increases; sometimes at the expense of quantity and quality of necessities. It is easier to budget when you can understand your income’s responsiveness to changing necessity costs for your family size, location, and other obligations.
The common approach of measuring affordability of housing as a percentage of income suggests that the more money you have left after your fixed expenditures have been paid, the more you have to spend and save. However, this fails in an equity- and appreciation-driven real estate market. Housing accessibility costs increasing higher than the average wage income earner could comfortably afford and limited tools of assessing capacity make it impossible for households to financially plan long-term.
As shelter does not conform to the model of other basic needs, as opposed to attempting to fit shelter and its expansive associated costs into a confined budget, a BNP can provide an estimate of how elastic a household’s budget is to current housing market rates supply.
What do BNPs look like?
SAMPLE HOUSEHOLD BNPS
Household BNPs are an index that determines, on an individual level, an approximate value representing the total dollar amount required for the provision of basic needs monthly (or, Basic Value). For each individual, a life-contingent model is calculated using cost-of-living and probability of survival adjustments then converted to a natural logarithmic scale to estimate the maximum future lifetime monthly expense – inclusive of periods of sudden changes in earning potential or cost changes (or, Longevity Factor). Furthermore, as opposed to using general percentages when determining how much home a household can afford, BNPs can provide an estimate of how elastic a household’s budgets are to current housing supply and market rates.
In application, it is best to interpret a household’s BNP comparative to that of a family of a similar size and average age. Sample BNPs are a good way to estimate your household’s.
Household’s whose BNP is equal to zero or whom have a total sum of unavoidable monthly expenditure greater than their current annual income are considered severely cost burdened.
Alter independently collects food, household and personal care products, and child care costs to calculate a household’s BNP. Several third-party gathered, industry standard tables and metrics are also utilized and updated monthly, where applicable.
The following BNPs were sampled on October 31, 2021. It is important to note, household BNPs in this set are on average lower due to high inflation rates at the time.
