What's Poverty? Meaning, Causes, and How to Measure


Investopedia / Laura Porter

What Is Poverty?

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. Poverty-stricken people and families 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. It's important to remember that 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.

Key Takeaways

  • 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.
  • Poverty is an individual concern as well as a broader social problem.
  • Welfare programs are used by governments to help alleviate poverty.
  • Poverty is the result of multiple factors, not simply income.

Understanding Poverty

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, 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 (social safety nets) than others. The U.S., for instance, tends to be much more individualistic and shuns welfare programs. European countries, in comparison, have a much broader range of welfare programs and support for those in need.

Aspects of Poverty

Poverty in the U.S.

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, or 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 latest Census, 37.9 million people in the U.S. lived in poverty in 2021, up from 37.2 million in 2020.

Each year, the Census Bureau updates its poverty threshold statistics. The table below shows the 2022 income thresholds for those in poverty. Each column represents the number of people living in a household under the age of 18.

  • In 2022, the poverty income threshold for a family of four with two children under the age of 18 is $27,750 per year.
  • In 2022, for two people over age 65 with no children under 18, the poverty threshold comes in at $18,310 per year.
  • 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).

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 current international poverty line is $2.15 per day.

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—defined as surviving on less than the $2.15 per day line—by the end of 2020.

It's estimated that more than 40% of the world's population lives in poverty, with the United States scoring the highest among developed nations. According to a report from Frontiers, communities of color are more susceptible to poverty because of "racist notions of racial inferiority and frequent denial of the structural forms of racism and classism" globally and within the U.S.

COVID-19 was responsible for plunging roughly 100 million more people into extreme poverty, according to the World Bank.

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.

What Causes Poverty?

Poverty is a difficult cycle to break and often passes from one generation to the next. It is often determined by socioeconomic status, ethnicity, gender, and geography. Many people are born into poverty and have little hope of overcoming it. Others may fall into poverty because of negative economic conditions, natural disasters, or surging living costs, as well as drug addiction, depression, and mental health issues.

Access to good schools, healthcare, electricity, clean drinking water, and other critical services remains elusive for many and is often determined by socioeconomic status, gender, ethnicity, and geography. Other root causes of poverty include:

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.

Typical consequences of poverty include alcohol and substance abuse, little to no 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.

Discrimination and Poverty

As noted above, poverty isn't simply related to income levels. In fact, there are a number of factors that can push people into or below the poverty line. Discrimination is just one of those issues. Put simply, people are prevented from living with and enjoying certain rights because of who they are. Here's why.

In some cases, governments may put certain laws and regulations that prevent certain individuals or communities from accessing services, such as healthcare, education, or social services. They may also be denied access to the labor market and/or housing, which can prevent them from reaching a suitable standard of living. In other cases, deep-rooted societal beliefs can isolate individuals, families, and entire communities.

Some of the most common groups of people who may experience this type of discrimination include (but aren't limited to):

  • People living with HIV/AIDS
  • Black, Indigenous, and People of Color
  • Women, including single mothers
  • Members of the LGBTQ+ community

According to statistics from the Williams Institute at the UCLA School of Law, 21% of gay men experience poverty while 23% of lesbians are affected. The school found that same-sex couples are more likely to live in poverty than other couples and children of LGBTQ+ couples are particularly vulnerable. Black same-sex couples are twice as likely to live in poverty than other Black couples.

How Poverty Is Measured

Poverty is commonly measured using income thresholds in many countries, including the United States. Centralized bodies like the Census Bureau collect data and update the information on an annual basis based on inflation. This information, which is reported through the Consumer Price Index for All Urban Consumers (CPI-U), generally includes income thresholds compiled from different sizes and types of families/households. Each family member in a household that falls under the threshold is considered to be in poverty, according to the Census Bureau.

Certain types of individuals are not included in the count as their level of poverty cannot be determined. These groups include:

  • People within certain group settings like prisons and nursing homes
  • Individuals living in military barracks
  • Those living in college dorms
  • People under the age of 15 whose income cannot be determined

Keep in mind that using income thresholds is just one way that countries measure poverty. But there are other ways to determine who lives above and below the poverty line. Some countries may use an absolute figure like the one used by the World Bank. As noted above, the organization determined that people who live below the $2.15-per-day limit are in poverty.

How to Reduce 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 those in need
  • 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 sets out to do, communities, governments, and corporations need to collaborate to implement strategies that improve living conditions for the world’s poor. Among these strategies may include boosting socioeconomic conditions, fighting and eliminating systemic racism, establishing minimum wages that align with the cost of living, providing paid leave, and promoting pay equity among other things.

What Countries Have the Highest Poverty Rates?

The countries with the highest poverty rates include Equatorial Guinea (76.8%), South Sudan (76.4%), Madagascar (70.7%), Guinea Bissau (69.3%), and Eritrea (69.0%).

Which States Have the Highest Poverty Rates?

The states with the highest poverty rates were Mississippi (18.7%), Louisiana (17.8%), New Mexico (16.8%), West Virginia (15.8%), and Arkansas (15.2%).

What Causes Poverty?

There is no single source of 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, depression, and other mental health issues. Conflict and geopolitical unrest can also lead to poverty as families are displaced.

How Is Poverty Measured?

Like many 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. Other countries do not use an absolute threshold, but instead a relative level of income below which the poverty line is established. For instance, a country may say that the bottom 10% of all earners constitute those in poverty.

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.

How Can Poverty Be Solved?

The answer to this question is complicated and nuanced. If it were easy or obvious, poverty would no longer be such a big issue. Social welfare programs and private philanthropy are ways to provide for those in poverty, along with access to essentials like clean water, good food, and adequate healthcare. However, more is needed. Programs that encourage impoverished individuals to obtain skills, jobs, and education are also important as a longer-term cure.

The Bottom Line

Poverty is defined as the state or condition where people and communities cannot meet a minimum standard of living because they lack the proper resources. These include (but aren't limited to) financial resources, basic healthcare and education, clean drinking water, and infrastructure. Living in the socioeconomic condition of poverty is a result of multiple factors not simply including race, sexual identity, sexual orientation, and access to education, among others. Organizations like the United Nations and the World Bank, which say that poverty will continue to grow well beyond 2030, urge nations to fight poverty by implementing policies and regulations that can drastically improve the quality of living for all communities.

Article Sources
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