5.2 Poverty

2026 Syllabus Objectives

By the end of this topic, you should be able to:

  • 5.2.1 Define absolute poverty and relative poverty, and explain the difference between them
  • 5.2.2 Explain the causes of poverty, including unemployment, low wages, illness, and age
  • 5.2.3 Explain policies used to reduce poverty and redistribute income, including promoting economic growth, improving education, more generous state benefits, progressive taxation, and the national minimum wage

5.2.1 — Absolute and Relative Poverty

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What is Poverty?

Poverty is a condition where a person does not have enough income or wealth to maintain a basic standard of living. In other words, they cannot afford the things they need to survive and live decently.

Economists divide poverty into two types: absolute poverty and relative poverty.

Absolute Poverty

Absolute poverty is when a person cannot afford the most basic necessities of life — things like food, clean water, clothing, shelter, sanitation (clean toilets and hygiene), and healthcare.

  • A person in absolute poverty is struggling to survive day to day.
  • The World Bank defines absolute poverty as living on less than $2.15 per day.
  • Absolute poverty is most common in developing countries — poorer nations that have not yet reached a high level of economic development.

Example: A family in a low-income country that cannot afford enough food for the week, has no clean water, and lives in a shelter with no electricity is experiencing absolute poverty.

Relative Poverty

Relative poverty is when a person's income is much lower than the typical (average) income of people in the same country, even if they can afford some basic needs.

  • It is about being poor compared to others around you.
  • A common measure is: a household is in relative poverty if its income is less than 60% of the median household income in that country.
    • The median income is the middle income — half of people earn more than this, half earn less.
  • Relative poverty is most common in developed countries — wealthier nations where some people fall behind the general standard of living.

Example: In the UK, if the median monthly household income is £2,000, then any household earning less than £1,200/month (60% of £2,000) is considered to be in relative poverty — even if they can afford basic food and shelter.

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