Understanding poverty
Poverty exists when people lack the resources to meet their basic needs. The World Bank defines extreme poverty as living on less than about US$2.15 per day (in 2017 purchasing power parity). Poverty can be absolute – failing to meet minimum standards of food, shelter and clothing – or relative, measured against the living standards of others in the same society.
Absolute vs relative poverty
| Type | Definition | Examples |
|---|---|---|
| Absolute poverty | Inability to afford basic necessities for survival such as sufficient food, clean water, shelter, clothing and healthcare. | Person living below the international poverty line of US$2.15 per day. |
| Relative poverty | Lacking the resources to participate fully in the normal life of the society in which one lives; defined relative to median income. | Household earning less than 50% of the median income in its country. |
Causes of poverty
- Unemployment and low wages – without a job or with insufficient income people cannot meet basic needs.
- Lack of education – limits employment opportunities and earning potential.
- Poor health and disability – can prevent people from working and increase expenses.
- Discrimination – based on gender, ethnicity or class may restrict access to jobs and resources.
- Political instability and conflict – wars and civil unrest destroy livelihoods and infrastructure.
- Natural disasters and climate change – can wipe out crops and homes.
Consequences of poverty
Poverty is associated with malnutrition, disease, low life expectancy, limited education, social exclusion and sometimes political instability. Children growing up in poverty may be trapped in a cycle that is hard to escape.
Policies to reduce poverty
- Economic growth – sustained growth generates employment and income.
- Education and healthcare – investment in human capital improves productivity and earning potential.
- Progressive taxation and social security – can redistribute income and provide safety nets.
- Microfinance and credit access – help small entrepreneurs start or expand businesses.
- International aid – grants and concessional loans for developing infrastructure and social programmes.
Examples and applications
Extreme poverty remains pervasive in parts of sub‑Saharan Africa and South Asia, where many people subsist on less than $2 a day. Droughts, conflict and lack of access to education exacerbate hardship. International initiatives like the United Nations’ Sustainable Development Goals aim to eradicate extreme poverty through programmes in health, education and infrastructure.
Relative poverty exists even in high‑income countries. In the United Kingdom, for example, households earning less than 60% of the median income are considered below the poverty line. Food banks and social housing schemes help those who cannot afford basic living costs despite overall national prosperity.
Microfinance institutions, such as the Grameen Bank in Bangladesh, lend small sums to entrepreneurs who lack collateral. Many women have used these loans to start businesses, generate income and lift their families out of poverty.
