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

Poverty

Investopedia / Laura Porter

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 the poverty line and counting how many of its people are living in poverty.

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 both an individual concern as well as a broader social problem.
  • The U.S. poverty income threshold for a family of four is $26,500 per year.
  • Welfare programs are used by governments to help alleviate poverty.
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Poverty

Understanding Poverty

Poverty refers to a lack of wealth or income such that individuals and households do not 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, lack of education, and poor health. As such, governments often instate social welfare programs to help lift families 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 the impoverished.

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—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, 37.2 million people in the U.S. lived in poverty in 2020, up from 33.9 million in 2019.

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 Thresholds 2020
Poverty Thresholds 2020.

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. It 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 $1.90 per day.

Many people around the globe still 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 the $1.90 per day line—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.

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.

Causes and Effects 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?

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 (CPI-U). 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.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. U.S. Department of Health & Human Services. "Poverty Guidelines."

  2. U.S. Census Bureau. "Poverty - Surveys & Programs."

  3. U.S. Census Bureau. "How the Census Bureau Measures Poverty."

  4. U.S. Census Bureau. "Income and Poverty in the United States: 2020."

  5. U.S. Census Bureau. "Poverty Thresholds."

  6. U.S. Department of Health & Human Services. "Programs that Use the Poverty Guidelines as a Part of Eligibility Determination."

  7. The World Bank. "Poverty."

  8. National Library of Medicine. "Distribution and Determinants of Low Birth Weight in Developing Countries."

  9. The World Bank. "A Child Under 15 Dies Every Five Seconds Around the World – UN Report."

  10. UNICEF. "Levels and Trends in Child Mortality."

  11. The World Bank. "Ending Extreme Poverty."

  12. U.S. Census Bureau. "Percentage of People in Poverty by State Using 2- and 3-Year Averages: 2017-2018 and 2019-2020."

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