What Is Poverty?
Poverty is a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living. Poverty means that the income level from employment is so low that basic human needs can't be met. Poverty-stricken people and families might go without proper housing, clean water, healthy food, and medical attention. Each nation may have its own criteria for determining how many of its people are living in poverty.
- Poverty is a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living.
- Poverty-stricken people and families might go without proper housing, clean water, healthy food, and medical attention.
- The U.S. poverty income threshold for a family of four is $26,500 per year.
Poverty status in the United States is assigned to people who do not meet a certain income threshold, which is set by the Department of Health and Human Services (HHS). Poverty rates in the United States—the percentage of the U.S. population living in poverty—are calculated by the U.S. Census Bureau.
When measuring poverty, the U.S. Census Bureau excludes the following people:
- Institutionalized people
- People living in military quarters
- People living in college dormitories
- Individuals under the age of 15
According to the Census Bureau, 37.2 million people in the U.S. lived in poverty in 2020, up from 33.9 million in 2019.
Types of Poverty
Each year, the Census Bureau updates its poverty threshold statistics. The table below shows the 2020 income thresholds for those in poverty. Each column represents the number of people living in a household under the age of 18.
- In 2020, the poverty income threshold for a family of four with two children under the age of 18 is $26,246 per year (highlighted in red).
- In 2020, for two people over age 65 with no children under 18, the poverty threshold comes in at $15,644 per year (highlighted in blue).
- We can see that the income level for the poverty threshold increases for families with more children under age 18.
The poverty thresholds, as well as the number of under-18 children in a home, are important because they help determine how government aid can be allocated, such as food assistance and medical care. The measurement for those in poverty uses pretax income or income before taxes are taken out by the Internal Revenue Service (IRS).
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.
Still, many people around the globe struggle to make ends meet. According to the World Bank, an estimated 711 million people lived in extreme poverty—defined as surviving on less than $1.90 per day—in 2021, which equates to about 10% of the global population.
COVID-19 was responsible for plunging roughly 100 million more people into extreme poverty, according to the World Bank.
Common traits for those living in extreme poverty include:
- Little or no education
- Under age 18
- Work in farming or agriculture
Poverty rates are important statistics to follow for global investors because high poverty rates are often indicative of more severe underlying problems within a country.
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 some impoverished 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.
Factors of Poverty
Access to good schools, healthcare, electricity, safe water, and other critical services remains elusive for many and is often determined by socioeconomic status, gender, ethnicity, and geography. For those able to move out of poverty, progress is often temporary. Economic shocks, food insecurity, and climate change threaten their gains and may force them back into poverty.
Poverty is a difficult cycle to break and often passes from one generation to the next. Typical consequences of poverty include alcohol and substance abuse, limited access to education, poor housing and living conditions, and increased levels of disease. Heightened poverty is likely to cause increased tensions in society as inequality increases. These issues often lead to rising crime rates in communities affected by poverty.
The United Nations and the World Bank are major advocates of reducing world poverty. The World Bank has an ambitious target of reducing poverty to less than 3% of the global population by 2030. Some of the actionable plans to eliminate poverty include the following:
- Installing wells that provide access to clean drinking water
- Educating farmers on how to produce more food
- Constructing shelter for the poor
- Building schools to educate disadvantaged communities
- Providing enhanced access to better healthcare services by building medical clinics and hospitals
For poverty to be eradicated as the World Bank has set out to do, communities, governments, and corporations would need to collaborate to implement strategies that improve living conditions for the world’s poor.
What Causes Poverty?
Poverty is often determined by socioeconomic status, ethnicity, gender, and geography. Many people are born into poverty and have little hope of overcoming it, while others may fall into this situation due to negative economic conditions, natural disasters, or surging living costs—as well as drug addiction and depression and mental health issues.
How Is Poverty Measured?
Like most other countries, poverty in the U.S. is measured by a set of income thresholds that vary by family size and composition. These thresholds are supplied by the Census Bureau and are updated annually to account for inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U).
Which States Have the Highest Poverty Rates?
According to the latest figures supplied by the U.S. Census Bureau, the states with the highest poverty rates are Mississippi, Louisiana, and New Mexico.