Poverty Trap

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

    A state or condition in which a person or community lacks the ...
  2. Jeffrey Sachs

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

    A complete breakdown of a national, regional or territorial economy. ...
  4. Investment Climate

    The economic and financial conditions in a country that affect ...
  5. World Bank Group

    Five international organizations dedicated to providing financial ...
  6. Bear Trap

    A false signal that the rising trend of a stock or index has ...
Related Articles
  1. Personal Finance

    Educating About Poverty Through Frugal Living

    Live Below the Line is a challenge that hopes to raise awareness about poverty in the U.S. These tips can help you cut your budget so that you can take part in the challenge.
  2. Personal Finance

    Why Being Poor Is So Expensive

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

    The Impact Of Financial Crisis On Women

    The female population is feeling the effects of global financial crisis harder than the rest.
  4. Markets

    10 Wealthiest States in the United States

    A review of the 10 richest states in America as ranked by median household income.
  5. 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.
  6. Markets

    Are We Losing The Middle Class?

    Find out where your income and lifestyle put you compared to the national average.
  7. Managing Wealth

    Carlos Slim: Famous or Infamous

    There is an irony to Carlos Slim being the wealthiest man in the world, living, as he has his entire life, in Mexico. His $73 billion net worth, as of 2015, stands out in astounding contrast ...
  8. Markets

    How Minimum Wage Impacts Unemployment

    We explain how the minimum wage affects unemployment, public assistance, and the economy overall.
  9. Markets

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  10. Investing

    What is a Developed Economy?

    A developed economy is typically one with a high level of growth and security.
RELATED FAQS
  1. How and when is the 10% penalty collected when someone less than 59 withdraws the ...

    Our 28 year old daughter has decided to enter a convent. In doing so she has liquidated all of her assets to be debt free ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. Is there any way to opt out of paying Social Security?

    Understand more about the purpose of the Social Security system and learn which groups of taxpayers are automatically exempt ... Read Answer >>
  6. Does cash-on-delivery aid produce better results than a loan?

    Learn of the arguments about the efficacy of cash on delivery, or COD, aid to poor areas, as set forth by its proponents ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center