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Managerial Economics

Poverty: What It Is and Who It Reaches

Poverty is the lack of resources for a minimum standard of living. What it means, how the international poverty line works, and what poverty does to children.

By 4 min read

What poverty means

The term poverty refers to the state or con­di­tion in which peo­ple or com­mu­ni­ties lack the finan­cial resources and essen­tials for a min­i­mum stan­dard of liv­ing. As such, their basic human needs can­not be met. Peo­ple and fam­i­lies who live in poverty may go with­out proper hous­ing, clean water, healthy food, and med­ical atten­tion. Each nation may have its own cri­te­ria for deter­min­ing the poverty line and count­ing how many of its peo­ple live in poverty. Poverty is a socioe­co­nomic con­di­tion that is the result of mul­ti­ple fac­tors, not just income. These fac­tors include race, sex­ual iden­tity, sex­ual ori­en­ta­tion, and lit­tle to no access to edu­ca­tion, among oth­ers.

Poverty refers to the lack of ade­quate finan­cial resources such that indi­vid­u­als, house­holds, and entire com­mu­ni­ties don't have the means to sub­sist or acquire the basic neces­si­ties for a flour­ish­ing life. This means being so poor as to strug­gle to obtain food, cloth­ing, shel­ter, and med­i­cines.

Poverty is both an indi­vid­ual con­cern as well as a broader social prob­lem. On the indi­vid­ual or house­hold level, not being able to make ends meet can lead to a range of phys­i­cal and men­tal issues. At the soci­etal level, high poverty rates can be a damper on eco­nomic growth and be asso­ci­ated with prob­lems like crime, unem­ploy­ment, urban decay, poor edu­ca­tion and poor health.

Gov­ern­ments often put social wel­fare pro­grams in place to help lift indi­vid­u­als, fam­i­lies, and com­mu­ni­ties out of poverty. Some coun­tries have stronger wel­fare states and social safety nets than oth­ers.

Global Poverty

Poverty has decreased in devel­oped coun­tries since the Indus­trial Rev­o­lu­tion. Increased pro­duc­tion reduced the cost of goods, mak­ing them more afford­able, while advance­ments in agri­cul­ture increased crop yields, as well as food pro­duc­tion.

The inter­na­tional poverty line is a mon­e­tary thresh­old under which an indi­vid­ual is con­sid­ered to be liv­ing in poverty. This fig­ure is cal­cu­lated by tak­ing the poverty thresh­old from each coun­try, given the value of the goods needed to sus­tain one adult, and con­vert­ing it into U.S. dol­lars. The World Bank set the line at 2.15 US dol­lars a day in 2022 and raised it to 3.00 US dol­lars a day in 2025.

Many peo­ple around the globe still strug­gle to make ends meet. Accord­ing to the World Bank, an esti­mated 719 mil­lion peo­ple lived in extreme poverty, below the 2.15 dol­lar line, by the end of 2020.

Poverty and Chil­dren

The impact of poverty on chil­dren is sub­stan­tial. Chil­dren who grow up in poverty typ­i­cally suf­fer from severe and fre­quent health prob­lems; infants born into poverty have an increased chance of low birth weight, which can lead to phys­i­cal and men­tal dis­abil­i­ties.

In cer­tain devel­op­ing coun­tries, poverty-stricken infants are nine times more likely to die in their first month com­pared to babies born in high-income coun­tries. Those who live may have hear­ing and vision prob­lems.

Chil­dren in poverty tend to miss more school due to sick­ness and endure more stress at home. Home­less­ness is par­tic­u­larly hard on chil­dren because they often have lit­tle to no access to health­care and lack proper nutri­tion, which often results in fre­quent health issues.

Key terms

Social safety net
The social safety net con­sists of non-con­trib­u­tory assis­tance exist­ing to improve lives of vul­ner­a­ble fam­i­lies and indi­vid­u­als expe­ri­enc­ing poverty and des­ti­tu­tion.
Con­sumer Price Index for All Urban Con­sumers (CPI - U)
The Con­sumer Price Index for All Urban Con­sumers mea­sures the monthly change in con­sumer prices for a rep­re­sen­ta­tive bas­ket of goods and ser­vices.
Inter­na­tional Mon­e­tary Fund (IMF)
The Inter­na­tional Mon­e­tary Fund is an orga­ni­za­tion of 190 coun­tries, work­ing to fos­ter global mon­e­tary coop­er­a­tion, secure finan­cial sta­bil­ity, facil­i­tate inter­na­tional trade, pro­mote high employ­ment and sus­tain­able eco­nomic growth, and reduce poverty around the world.

Com­mon ques­tions

What is the rela­tion­ship between poverty and inequal­ity?

Inequal­ity is con­cerned with the full dis­tri­b­u­tion of well­be­ing; poverty is focused on the lower end of the dis­tri­b­u­tion only – those who fall below a poverty line. Inequal­ity can be viewed as inequal­ity of what, inequal­ity of whom and inequal­ity over what time hori­zon.

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