Poverty Trap

AAA

DEFINITION of 'Poverty Trap'

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.

INVESTOPEDIA EXPLAINS '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. International Poverty Line

    An international monetary threshold under which an individual ...
  2. Poverty Gap

    The average shortfall of the total population from the poverty ...
  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. Standard Of Living

    The level of wealth, comfort, material goods and necessities ...
  6. Nordic Model

    The social welfare and economic systems adopted by Nordic countries.
RELATED FAQS
  1. How do you calculate GDP with the expenditures approach?

    To calculate gross domestic product, or GDP, with the expenditures approach, add up the sums of all consumer spending, government ... Read Full Answer >>
  2. How will a value added tax impact the government budget?

    In 1992, the Congressional Budget Office conducted an economic study on value-added tax, or VAT. At the time, the CBO concluded ... Read Full Answer >>
  3. What is the correlation between money supply and GDP?

    It is difficult to measure the money supply, but most economists use the Federal Reserve's aggregates known as M1 and M2. ... Read Full Answer >>
  4. In what manner will a recession likely affect the marginal-propensity-to-save rate ...

    The marginal propensity to save, or MPS, rises in most, though not all, recessions. This makes perfect sense on an individual ... Read Full Answer >>
  5. Why would a country's gross domestic product (GDP) and gross national income (GNI) ...

    A country’s gross domestic product, or GDP, and gross national income, or GNI, are likely to differ considerably because ... Read Full Answer >>
  6. While closely related, how do gross domestic product (GDP) and gross national income ...

    Gross domestic product, or GDP, and gross national income, or GNI, are the two most important economic indicators that measure ... Read Full Answer >>
Related Articles
  1. Budgeting

    Free Financial Counseling Programs For Students

    Learning to manage your money is no easy task, but there are plenty of resources designed especially to help.
  2. Insurance

    An Introduction to Microfinance

    Is microfinance a way to help the poor, or will it just make them poorer?
  3. Fundamental Analysis

    Standard Of Living Vs. Quality Of Life

    What is the difference between a standard of living and quality of life? Find out in this breakdown.
  4. Budgeting

    Pay For College Without Selling A Kidney

    Save thousands of dollars on tuition with these tricks and little-known programs.
  5. Personal Finance

    Are We Losing The Middle Class?

    Find out where your income and lifestyle put you compared to the national average.
  6. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  7. Economics

    Explaining Protectionism

    Protectionism is government measures that limit imports into a country to protect commerce within that country against foreign competition.
  8. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  9. Economics

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  10. Economics

    Is Texas The Future Of America?

    The top three fastest-growing cities are located in Texas and 20% of jobs created between 2009 and 2014 were in the Lone Star State.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!