# Understanding Poverty: Definition, Causes, and Measurement

![Poverty](https://www.investopedia.com/thmb/E2JfuPXRljpnxYe_ZB84F4Si6_I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/poverty-66394600b2a04dd9baa4392100fe7d2c.jpg)

*— Investopedia / Laura Porter*

## What Is Poverty?

Poverty is a socioeconomic condition where individuals, families, or communities cannot achieve a minimum [standard of living](https://www.investopedia.com/terms/s/standard-of-living.asp) due to insufficient financial resources and essentials. The inability to meet basic human needs like housing, clean water, food, and medical care defines this condition.

Various nations establish criteria to determine the poverty line and quantify the population affected. While often linked to income, poverty stems from a range of factors such as race, sexual identity, and access to education.

### Key Takeaways

*   Poverty is more than just a lack of income; it is a complex socioeconomic condition influenced by factors such as race, ethnicity, gender, and access to education.
*   Approximately 37.9 million people in the U.S. were living in poverty as of 2022, with poverty thresholds varying based on household size and age.
*   Global poverty remains a pressing issue, with over 700 million people worldwide living in extreme poverty on less than $2.15 per day.
*   Children growing up in poverty face significant challenges, including health problems, higher mortality rates, and limited access to education and nutrition.
*   Efforts to reduce poverty require a multifaceted approach involving social welfare programs, education, economic stability, and tackling systemic discrimination.

## The Impact and Challenges of 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 to acquire the basic necessities for a flourishing life. This absence of means can result in struggles to obtain food, clothing, shelter, and medicine.

Poverty is both an individual concern as well as a broader social problem. At the individual or household level, not being able to make ends meet can lead to a range of social, physical, and mental issues. High poverty rates can slow [economic growth](https://www.investopedia.com/terms/e/economicgrowth.asp) and are linked to crime, [unemployment](https://www.investopedia.com/terms/u/unemployment.asp), urban decay, poor education, and health issues.

Governments use social welfare programs to help lift people and communities out of poverty. Some countries have stronger welfare states (social safety nets) than others. For instance, the United States tends to be much more individualistic and has relatively limited welfare programs. European countries, in comparison, have a much broader range of [welfare](https://www.investopedia.com/terms/w/welfare.asp) programs and supports for those in need.

### 37.9 Million

According to the latest census, the number of people in the U.S. who lived in poverty in 2022, or 11.5% of the nation's population.

## The Diverse Dimensions of Poverty

### Poverty in the U.S.

In the U.S., poverty status is given to those with income below a threshold set by the [Department of Health and Human Services (HHS)](https://www.investopedia.com/terms/u/us-department-health-and-human-services-hhs.asp). U.S. poverty rates, or the percentage of the U.S. population living in poverty, are calculated by the U.S. [Census Bureau](https://www.investopedia.com/terms/b/bureauofcensus.asp).

When measuring poverty, the Census Bureau excludes the following people:  

*   Institutionalized people
*   People living in military quarters
*   People living in college dormitories
*   Individuals under the age of 15

### U.S. Poverty Thresholds

Each year, the Census Bureau updates its [poverty threshold](https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html) 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.

*   The poverty income threshold for a family of four with two children under the age of 18 was $29,678 per year.
*   For two people over age 65 with no children under 18, the poverty threshold was $17,689 per year.  
    

Poverty thresholds and the number of children under 18 in a home help determine how government aid is allocated. The measurement for those in poverty uses pretax income or income before taxes are taken out by the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp).

### Poverty Around the World

Poverty has decreased in [developed countries](https://www.investopedia.com/terms/d/developed-economy.asp) since the [Industrial Revolution](https://www.investopedia.com/terms/i/industrial-revolution.asp). Increased production reduced the cost of goods, making them more affordable, while advancements in agriculture increased [crop yields](https://www.investopedia.com/terms/c/crop-yield.asp), as well as food production.

The [international poverty line](https://www.investopedia.com/terms/i/international-poverty-line.asp) indicates when an individual is 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](https://www.investopedia.com/terms/w/worldbank.asp), an estimated 700.6 million people lived in extreme poverty in September 2023.

Over 40% of the world's population lives in poverty, and the U.S. ranks poorly among developed nations. According to a report published in the journal Frontiers in Public Health, 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.  

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

### How Poverty Affects 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 developing countries, infants in poverty are nine times more likely to die in their first month than those 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.  

## Root Causes of Poverty

Poverty is a difficult cycle to break and can pass 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](https://www.investopedia.com/financial-edge/0311/the-financial-effects-of-a-natural-disaster.aspx), or surging living costs, as well as drug addiction, depression, and mental health issues.  

Poverty also has other root causes, such as:  

*   Limited to no job growth
*   Poor [infrastructure](https://www.investopedia.com/terms/i/infrastructure.asp)
*   Conflict and war
*   High [cost of living](https://www.investopedia.com/terms/c/cost-of-living.asp)
*   Social barriers
*   Lack of government support

For those able to move out of poverty, progress is often temporary. [Economic shocks,](https://www.investopedia.com/terms/e/economic-shock.asp) [food insecurity](https://www.investopedia.com/food-insecurity-impacts-economy-8303222), 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. Access to good schools, healthcare, electricity, clean drinking water, and other critical services remains elusive for many in poverty.

Heightened poverty is likely to cause increased tensions in society as inequality increases and, in turn, lead to rising crime rates.  

## The Role of Discrimination in Poverty

As noted above, poverty isn't simply related to income levels. In fact, there are a number of factors that can push people to or below the poverty line. [Discrimination is just one](https://www.investopedia.com/caste-discrimination-and-consequences-8421061) of them.

In some cases, governments may pass certain laws and regulations that prevent certain individuals or communities from accessing services, such as healthcare, education, or social services. These people may also be denied access to the [labor market](https://www.investopedia.com/terms/l/labor-market.asp) 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:

*   People living with HIV/AIDS
*   Black, Indigenous, and People of Color
*   Women, including single mothers
*   Members of the [LGBTQ+](https://www.investopedia.com/guide-to-finance-for-lgbtq-americans-5118290) community

According to the most recent statistics from the Williams Institute at the UCLA School of Law, poverty rates among members of the LGBTQ+ community have dropped since the COVID-19 pandemic. But rates are still higher than for those who don't identify as LGBTQ+. The most recent report showed that:

*   17% of LGBT people in the U.S. lived in poverty in 2021 compared to 12% in non-LGBT communities
*   21% of transgender people lived in poverty in the U.S. in 2021 compared to 20% of cisgender bisexual women
*   26% of LGBT families with children experienced poverty in 2021

The report also indicated that LGBTQ+ people of color—notably, "Black, Latinx/Hispanic, Native Hawaiian/Pacific Islander (NH/PI), American Indian/Alaskan Native (AI/AN), and Multiracial people"—are more likely to experience poverty compared to White or Asian Americans.  

## Measuring Poverty: Methods and Indicators

Poverty is commonly [measured using income thresholds](https://www.investopedia.com/financial-edge/0411/5-groups-that-dont-pay-taxes.aspx) in many countries. Centralized bodies like the Census Bureau collect data and update the information on an annual basis based on [inflation](https://www.investopedia.com/articles/01/021401.asp).

This information, which, in the U.S., is reported through the [Consumer Price Index for All Urban Consumers (CPI-U)](https://www.investopedia.com/terms/c/cpiu.asp), generally includes income thresholds compiled from different sizes and types of families or 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.  

## Strategies for Reducing 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 intends, communities, governments, and corporations need to collaborate to implement strategies that improve living conditions for the world’s poor.

Strategies may involve improving socioeconomic conditions, combating systemic racism, aligning [minimum wages](https://www.investopedia.com/terms/m/minimum_wage.asp) with living costs, providing paid leave, and promoting [pay equity](https://www.investopedia.com/what-is-comparable-worth-5115639).  

## What Countries Have the Highest Poverty Rates?

The countries with the [highest poverty rates](https://www.investopedia.com/terms/f/fourth-world.asp) include South Sudan (82.30%), Equatorial Guinea (76.80%), Madagascar (70.70%), Central African Republic (68.80%), and Burundi (64.09%).

## Which States Have the Highest Poverty Rates?

As of 2024, the states with the highest poverty rates were Louisiana (19.60%), Mississippi (19.40%), New Mexico (18.40%), West Virginia (16.80%), and Kentucky (16.50%). The District of Columbia's poverty rate is 16.50%.

## Can Poverty Be Solved?

The answer to this question is complicated and nuanced. Social welfare programs and private philanthropy are some avenues through which 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 and help impoverished individuals to obtain skills, jobs, and education are crucial for 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](https://www.investopedia.com/terms/p/poverty-gap.asp). These include (but aren't limited to) financial resources, basic healthcare and education, clean drinking water, and infrastructure.

Poverty results from various factors like race, sexual identity, and access to education.

Organizations such as the United Nations and the World Bank, which believe that poverty will continue to grow well beyond 2030, urge nations to fight it by implementing policies and regulations that can drastically improve the quality of living for all communities.

> **Article Sources**
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