Poverty Study Guide

📖 Core Concepts Poverty – Lack of financial resources and essentials for a basic standard of living; also seen as denial of choices, opportunities, and human dignity (UN). Absolute Poverty – Fixed threshold of income needed to meet basic human needs (food, water, shelter, health, education). Relative Poverty – Income below a set share (usually 60 %) of the median household income; highlights inequality within societies. Extreme‑poverty line – World Bank’s $1.90 /day (2015 PPP). Poverty Cycle – Interlinked health, education, and environmental problems that reinforce each other, creating a multi‑level feedback loop. Scarcity‑induced “Bandwidth Tax” – Cognitive resources are drained by financial stress, reducing working‑memory and long‑term planning capacity. Social Protection – Policies (cash transfers, basic income, subsidies) that directly boost disposable income or provide essential services. 📌 Must Remember World Bank extreme‑poverty line: <$1.90 /day (PPP, 2015). Relative‑poverty benchmark: < 60 % of median household income (OECD/EU). Global extreme‑poverty trend: 43 % (1981) → 14 % (2011); absolute number ↓ from 1.95 billion → 1.01 billion. Poverty‑related mortality: ⅓ of global deaths ≈ 18 million/yr. Child malnutrition: ≈ ½ of all child deaths. Cash‑transfer impact: +12 % nutritious‑food consumption; +8 % school attendance (Kenya). Land‑rights effect: Secure tenure can double poor‑household wealth. Energy‑poverty threshold: > 10 % of household income spent on energy or lack of grid connection. Gender disparity: Women experience the highest poverty rates after children. 🔄 Key Processes Measuring Absolute Poverty (Dollar‑a‑Day) Convert local currency to PPP dollars. Compare daily per‑capita income to the $1.90 threshold. Identifying Relative Poverty Compute median household income for the population. Multiply by 0.60 → poverty line. Count households below this line. Cash‑Transfer Implementation Targeting: Means‑testing or universal eligibility. Delivery: Mobile money, iris scanning, or CBDC platforms. Monitoring: Track consumption, school attendance, health outcomes. Breaking the Poverty Cycle Improve health → increase labor productivity. Enhance education → better job prospects. Strengthen infrastructure → lower input costs, raise incomes. 🔍 Key Comparisons Absolute vs. Relative Poverty Absolute: Fixed needs‑based threshold (e.g., $1.90 /day). Relative: Income share of median; focuses on inequality. Cash Transfers vs. In‑Kind Subsidies Cash: Higher efficiency, recipient choice, lower leakage. In‑Kind: May benefit non‑poor consumers, higher administrative cost. Progressive Taxation vs. Wealth Tax Progressive Tax: Raises rates on higher incomes; redistributes earnings. Wealth Tax: Levies on net worth above a threshold; targets asset concentration. ⚠️ Common Misunderstandings “Poverty = Low Income only.” – Poverty also includes lack of access to health, education, water, sanitation, and voice. “Cash transfers create dependency.” – Evidence shows most recipients invest in productive assets and improve human capital. “Relative poverty is irrelevant in low‑income countries.” – Even in poor nations, inequality matters for social cohesion and policy design. “Energy poverty is just lack of electricity.” – It also includes unaffordable heating/cooling and reliance on polluting fuels. 🧠 Mental Models / Intuition “Poverty as a Leaky Bucket.” – Income leaks out on basic needs, leaving little for savings/investment; plugging leaks (e.g., health subsidies) restores water (capital). “Bandwidth Tax” Analogy: Financial stress acts like a tax on mental bandwidth, reducing capacity for complex tasks—think of a phone battery drained by background apps. “Poverty Cycle Ladder”: Each rung (health → education → income) supports the next; a break at any rung destabilizes the whole ladder. 🚩 Exceptions & Edge Cases Ultra‑poverty: Spending > 80 % of income on food and consuming < 80 % of minimum calories. Secondary Poverty: Income above absolute line but excessive spending on non‑essentials pushes household below poverty threshold. Energy‑poverty thresholds differ between temperate (heating‑focused) and tropical (cooling‑focused) contexts. 📍 When to Use Which Choosing a Poverty Measure: Use absolute for cross‑country development tracking and SDG‑1 reporting. Use relative when assessing inequality within a high‑income or middle‑income society. Policy Tool Selection: Cash transfers → when rapid poverty reduction and recipient autonomy are priorities. In‑kind subsidies → when market failures (e.g., fuel price spikes) threaten specific essential goods. Progressive taxation/wealth tax → to address structural inequality and fund universal programs. Intervention Focus: Land‑rights reforms → in agrarian economies where most poor are farmers. Energy‑poverty programs → where >10 % of income is spent on energy or grid access is < 70 %. 👀 Patterns to Recognize Health → Income Loop: Poor health → low productivity → lower income → poorer health. Conflict‑Poverty Spike: Sharp rise in poverty rates in countries experiencing armed conflict (> 40 % of world’s poor in 2020). “Benefit Cliff” Signals: Sudden drop in assistance when income just exceeds eligibility; design gradual phase‑outs to avoid it. Urban Gentrification Effect: Rising rents → displacement of low‑income residents → higher concentration of poverty elsewhere. 🗂️ Exam Traps Confusing “relative” with “absolute” thresholds – Remember $1.90 /day is absolute; 60 % of median is relative. Assuming cash transfers always raise labor supply – Evidence shows minimal impact on employment; the main gains are consumption and wellbeing. Believing “energy poverty = no electricity.” – It also includes unaffordable heating/cooling and reliance on polluting fuels. Mixing “poverty line” with “poverty gap.” – Poverty line is a threshold; the poverty gap measures average shortfall below that line. Over‑generalizing gender poverty data – Women are the most affected after children, but the mechanisms differ across regions (e.g., caregiving burden vs. labor market segregation).