Factsheets & Guides

FACTSHEET: What is poverty?

Researched by Nechama Brodie

Definitions of poverty vary according to who is doing the measuring, be it the World Bank, governments, aid agencies or nongovernmental organisations, or people who live in conditions of poverty. The language around poverty is constantly expanding to reflect more inclusive approaches to the issue. In this guide we explain the differing definitions of poverty and how poverty is measured.

Absolute poverty

The term “absolute poverty” generally refers to a specific income threshold or a fixed amount, below which individuals are unable to meet basic needs. By international standards, it is a “state in which a family earns less than a minimum amount of income – typically US$1.25 per day per person in low-income countries”. This limited income makes it difficult for the family to cover its basic costs of living.

Relative poverty

In relative terms, individuals are considered poor when their financial position compares unfavourably with an average living standard in society – what the United Nations describes as the “inability of individuals, households, families, or entire communities to attain a minimum and socially accepted standard of living”. Relative poverty may also refer to the lowest income level of a society – i.e. the portion of a population that earns the least. This creates a completely different characterisation of poverty: though absolute poverty may be eliminated as incomes grow, there will always be a lowest-earning group in any population and always a degree of relative poverty.

Another way of viewing relative income gaps is through the controversial Gini index. The index records income distribution as a value between 0 and 100, where 0 represents perfect equality and 100 represents perfect inequality.

Social Exclusion

The “social exclusion” model recognises that poverty is about more than insufficient material resources. Here poverty is defined by a lack of access to food and shelter as well as a lack of features such as dignity and security. Social exclusion is explained by the United Nations as being “a denial of choices and opportunities, a violation of human dignity”. This definition takes account of non-material dimensions of poverty such as marginalisation, susceptibility to violence; environmental insecurity and the “lack of the basic capacity to participate effectively in society”.

Both “relative poverty” and the “social exclusion” model allow for broader discussions of poverty, and are central to growing debates around poverty in relatively wealthy countries or societies where absolute poverty has been eliminated but where relative forms persist.

Understanding the indicators: poverty lines

A common measure of poverty is that of “poverty lines”. Poverty lines typically provide a monetary cut-off; falling “below the line” indicates poverty. Where the poverty line is drawn depends on how poverty has been defined.

International agencies such as the World Bank and United Nations use an “international poverty line” indicator of US$1.25/day, measured at 2005 rates and adjusted for “purchasing power parity” or PPP (what your money buys in each country). According to this measure, a person is “considered poor if his or her consumption or income level falls below” US$1.25/day. More information on the methods involved in calculating this “exchange rate for the poor” can be found in this paper.

Because the US$1.25 amount represents “extreme” poverty, some reports also use a supplementary figure of US$2.50/day. This is the median poverty line across all but 15 of 75 developing countries surveyed by the World Bank. This represents a slightly higher poverty threshold, allowing researchers to include much larger populations in their studies.

National poverty lines may be drawn differently to include the lowest 30% of income earners in a population, for example, or according to a combination of definitions and criteria adopted by the measuring or evaluating authority. Because poverty lines tend to differ between countries, it is important to be clear about the measures used when comparing poverty data sets outside the PPP/US$1.25 figure.

Understanding the indicators: subjective measures

The information used for national and international poverty lines is determined according to standardised measures of poverty based on experts’ definitions. As such, these measures are considered “objective” indicators of poverty.

However, most surveys acknowledge that these indicators are not exhaustive and do not necessarily yield a complete picture of the lived experience of being poor. To address this, “subjective poverty indicators” based on individuals’ assessment of their own poverty are also frequently included. These indicators may include self-perceived wealth; what individual households believe is the minimum required to make ends meet; and individuals’ perceptions of their relative economic status.

Measuring poverty

South Africa does not have a single official poverty line. According to the Studies in Poverty and Inequality Institute, Statistics South Africa uses three poverty lines, including a “food poverty line”, as well as upper- and lower-bound lines to measure the total cost of living. Statistics South Africa explains that its poverty line measures provide “statistical standards and a systematic approach to reporting monetary poverty indicators” as well as “non-monetary information on households and individuals” to build more comprehensive profiles.

The Core Welfare Indicators (Poverty) Survey of Botswana’s Central Statistics Office uses a “Poverty Datum Line”, which it defines as “the cost of a basket of goods and services deemed to be necessary and adequate to meet basic needs for household members. The basic needs refer to basic requirements for food, clothing, personal items, household goods and services and shelter.” The 2009/2010 survey found that 14.7% of households in Botswana fell below the national poverty line, compared with 6.5% of individuals who fell below the international poverty line of US$1/day used in the report.

In Nigeria the Harmonized Nigeria Living Standard Survey is prepared by the National Bureau of Statistics using national consumer surveys, together with other figures. Based on this, the country released a national Poverty Profile report in which four different approaches were used, including self-determined or national measures of relative and absolute poverty; the World Bank’s PPP index; a subjective poverty component; and Gini index calculations. The bureau stated that while “different countries use any one or more of these measures to calculate poverty,” it had adopted “the relative poverty method as Nigeria’s official measure of poverty”.

Reporting poverty

Nigeria’s poverty survey provides an interesting, quick study in how media reports could present very different stories using the same data. When the 2010 Poverty Profile findings were released in 2012, three of the poverty indicators that were used showed that national poverty had increased from about 50% in 2004 to more than 60% in 2009. A BBC report repeated this information and added a table, based on the statistics bureau’s data, showing that the number of Nigerians living in poverty had grown from 17.1-million people in 1980 to a shocking112.47-million in 2010. Viewed as raw figures rather than a percentage or proportion of the population, such information could be misleading. To provide relevant context, such data should be presented alongside broader population information: in 1980 Nigeria’s total population was 71.1-million people, growing to an estimated 162.4-million in 2011.

Using the Gini index requires a similar awareness of context. Gini calculations are a common feature of definitions of relative poverty, but these calculations should be used with caution. Measures of “equal”, “unequal” and the degrees in between do not necessarily translate into answers about poverty. A society where everyone is equally poor, for example, would yield a potentially misleading, low Gini coefficient.

Agencies such as Oxfam have argued that the Gini model should be replaced with more progressive and detailed measures of inequality.

 

Useful resources: 

The African Development Bank provides a useful table of poverty indicators for Africa, comparing both national and international poverty lines for each country.

For comparable country-specific information, the International Monetary Fund and World Bank produce a regular series of Poverty Reduction Strategy Papers for individual African countries.

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