1 Understanding Poverty

Defining poverty

Poverty is a condition in which people lack the resources or opportunities needed to meet important needs and maintain an acceptable standard of well-being. It can involve inadequate income, but it can also involve limited access to necessities and services.

Understanding poverty requires attention to both its definition and its measurement. Different definitions and measures can classify the same person or household differently, and the definition chosen affects which hardships become visible.

Absolute poverty

Absolute poverty means falling below a threshold intended to represent the minimum resources needed to meet basic needs, such as food, clothing, and shelter. The threshold is generally held constant in real terms over time, with adjustments for price changes; its exact level and the needs it includes depend on the measure being used.

For example, a household is counted as absolutely poor if its income or consumption is below the estimated cost of a specified basic-needs standard.

Relative poverty

Relative poverty means having substantially fewer resources than are typical in the society where a person lives. It is often measured by comparing household income with a share of the national median. Because the reference point is the society’s income distribution, the threshold can change as typical incomes change.

This approach highlights economic disadvantage and whether people can attain the living standards and participate in social life usual in their community. A household may meet basic physical needs but still be relatively poor if its income is far below the national median and it cannot afford goods or activities commonly expected in its society.

Multidimensional poverty

Multidimensional poverty describes overlapping deprivations across several aspects of well-being, rather than low income alone. Commonly measured dimensions include health, education, and living standards. Indicators might include nutrition, school attendance, safe water, sanitation, electricity, and housing.

A measure specifies which indicators count, how they are weighted, and how many deprivations are needed to classify someone as poor. National measures can use dimensions suited to local priorities.

For example, a household could be above an income poverty line yet face poor housing, lack of safe water, and limited access to schooling. An income-only measure might miss these hardships, while a multidimensional measure can record them.

Subjective poverty

Subjective poverty is understood through people’s own assessments of their financial situation, needs, or well-being. Surveys may ask whether respondents consider themselves poor or whether their household income is sufficient to make ends meet.

These measures capture lived experience and perceptions, but responses can vary with expectations, local circumstances, and personal interpretation. For instance, two households with similar incomes may assess their situations differently because their needs, costs, or sense of what is adequate differ. Subjective measures complement rather than replace other measures.

Comparing poverty measures

Each form of measurement uses a different reference point and helps answer a different question:

• Absolute: compares resources with a basic-needs threshold to show whether they meet a defined minimum standard.

• Relative: compares resources with those typical in the society to show economic disadvantage and barriers to customary participation.

• Multidimensional: identifies deprivations across selected areas of life to show which overlapping hardships people experience.

• Subjective: records people’s own assessments to show how they perceive their needs and financial circumstances.

These forms are not interchangeable. A careful account of poverty states which definition and measurement are being used. Several measures together can provide a fuller picture than any one alone.