Causes of Poverty (CIE IGCSE Economics)

• Poverty is a situation where a person lacks the financial resources to sustain a basic standard of living
   
• Economists distinguish between absolute & relative poverty
    
• Absolute poverty is a situation where individuals cannot afford to acquire the basic necessities for a healthy & safe existence
  • • These necessities include shelter, water, nutrition, clothing & healthcare
    • In 2022, the World Bank defined absolute poverty as anyone who was living on less than $1.90 a day
      
    • Absolute poverty is more prevalent in developing countries than developed ones
      
      
• Relative poverty is a situation where household income is a certain percentage less than the median household income in the economy
  • Poverty in a household is considered relative to income levels in other households
  • E.g. The UK defines relative poverty as households that are living with less than 60% of the median household income
    • In May 2022, the median UK monthly household income was £2072/month
    • This meant that the relative poverty line was any household earning less than £1243,20/month
       
• Relative poverty is the main form of poverty that occurs in developed countries
  
  

• There are many causes of poverty. However, poor countries have several common characteristics which can be summarised in a poverty cycle diagram
  
  

Poverty is caused by a lack of both economic growth & human development
 

• Low wages represent the intersection of economic growth & human development & are the major cause of poverty
  • Low wages are usually the result of unemployment, informal employment, a lack of skills, or a primary sector based economy
     
• Education & healthcare cost money & with lower wage levels these are not accessible, resulting in poor human capital
  • People find it harder to stay well or to recover from illness resulting in lower productivity & shorter life expectancy
      
• Low productivity results in low wages & the cycle continues
  
  
• Populations with a large number of dependents (old people & children) for each working household tend to experience higher levels of poverty