What is the 'Poverty Trap'

The poverty trap is a mechanism which makes it very difficult for people to escape poverty. A poverty trap is created when an economic system requires a significant amount of various forms of capital in order to earn enough to escape poverty. When individuals lack this capital, they may also find it difficult to acquire it, creating a self-reinforcing cycle of poverty.

BREAKING DOWN 'Poverty Trap'

In order to escape the poverty trap, it is argued that individuals in poverty must be given sufficient aid so that they can acquire the critical mass of capital necessary to raise themselves out of poverty. This theory of poverty helps to explain why certain aid programs which do not provide a high enough level of support may be ineffective at raising individuals from poverty. If those in poverty do not acquire the critical mass of capital, then they will simply remain dependent on aid indefinitely and regress if aid is ended.

RELATED TERMS
  1. Poverty Gap

    The average shortfall of the total population from the poverty ...
  2. International Poverty Line

    An international monetary threshold under which an individual ...
  3. Poverty

    A state or condition in which a person or community lacks the ...
  4. Federal Poverty Level - FPL

    The set minimum amount of gross income that a family needs for ...
  5. Jeffrey Sachs

    An American economist who is director of the Earth Institute. ...
  6. Economic Collapse

    A complete breakdown of a national, regional or territorial economy. ...
Related Articles
  1. Insights

    Understanding Poverty

    Poverty exists when a person’s or community’s basic needs are not being met because financial resources are lacking.
  2. Insights

    America's Poorest States in 2015

    Learn the reasons Mississippi, New Mexico, Louisiana, Georgia and Kentucky are the poorest states in the United States, as of 2015.
  3. Insurance

    Why Being Poor Is So Expensive

    The less you earn, the more you're likely to spend for the everyday necessities of life.
  4. Insights

    IMF on the 4 Headwinds of U.S. Economic Growth

    Explore the four major economic headwinds that the International Monetary Fund (IMF) identifies as principal obstacles to strong U.S. economic growth.
  5. Taxes

    Which Income Class Are You?

    This article identifies the various income classes in America. Find out which class you fall under.
  6. Insights

    10 Wealthiest States in the United States

    A review of the 10 richest states in America as ranked by median household income.
  7. Personal Finance

    The Minimum Wage: Does It Matter?

    The numbers show that a fight for a living wage is more important than a fight for a raise in minimum wage.
  8. Insights

    Why the Bay Area's Economy is on Fire (for Now)

    The Bay Area's economy has the strongest job market and wage growth in the country. How long will it last?
  9. Personal Finance

    Are We Losing The Middle Class?

    Find out where your income and lifestyle put you compared to the national average.
RELATED FAQS
  1. Is China a developed country?

    Understand why China, despite having the world's second-largest economy and third-largest military, is not yet classified ... Read Answer >>
  2. What is the difference between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ... Read Answer >>
  3. What impact does industrialization have on wages?

    Discover the impact that industrialization has on wages, and how the Industrial Revolution changed human standards of living ... Read Answer >>
  4. What macroeconomic problems do policy makers most commonly face?

    Learn about the macroeconomic factors policymakers have to be concerned with when deciding on economic policies, such as ... Read Answer >>
  5. Is Mexico an emerging market economy?

    Learn the difference between a developed economy and an emerging market economy, and understand why Mexico is an emerging ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center