Poverty - Online Tutor, Practice Problems & Exam Prep

Poverty is defined by the government-set poverty line, which varies by household size. For example, in 2017, a four-person household's poverty line was $24,300. The poverty rate reflects the percentage of the population living below this line, with significant trends showing correlations with race, age, and family composition. The poverty trap illustrates how systemic issues, like credit constraints and underfunded schools, perpetuate poverty, limiting access to education and economic opportunities, ultimately reinforcing the cycle of poverty.

Poverty

So what constitutes as poor? Let's go ahead and discuss this topic of poverty in this video. The poverty line is a level of income set by the government, okay? This poverty line is going to be some sort of threshold. The government is going to say if your family is making any money below this threshold, right, they're going to say this is an amount of money, if you're making less than that, well you're living in poverty, okay? That's the poverty line. And this poverty line, it's going to depend on the size of the poverty line. And this poverty line, it's going to depend on the size of the household. You can imagine that the poverty line for someone living by themselves is going to be lower than a poverty line for say a 4 person or 6 person household, okay? So it depends on that size of the household and in 2017, just for an example, the poverty line for a 4 person household here in the US was 24,300, okay? So that was the poverty line set by the government for a 4 person household. Anyone earning less than this amount would be considered to be in poverty. Okay? So the poverty rate, well this is the percentage of the population that is living in poverty, Okay? So this is important stuff when we come to economics. Now we're starting to blend the line between microeconomics and macroeconomics here, right? Aren't we talking about some big picture stuff? This kind of almost falls on your macroeconomics, but they touch upon this in your textbooks. Alright?

So let's go ahead and check this out. We've got a couple of graphs here just to show the kind of history of poverty we've seen here in the US, so you can notice it goes down. These gray areas here on the graph, those were recessions. Those were times where we were in a recession, and you can see that it's changed over time, and as of the time of this graph, there were approximately 43,000,000 people living in poverty, which was about 13.5 percent of our nation. Alright? So let's talk about some of this data. Well, first of all, this data about poverty, we're talking about the income, right? We're talking about the income that these families get, but it doesn't include all sources of income, okay? There are some things that are excluded, and we call these in-kind transfers. So right here, in-kind transfers, these are programs that provide goods and services, so this is like food stamps or healthcare rather than cash, right? They're getting services rather than cash, okay? So they're still getting essentially income, right? Because this food or this healthcare, these are things they would have to pay for if they weren't poor, right? So in essence, it's a source of income, but it's not included in this calculation of poverty here, okay? So let's talk about some of the significant trends associated with poverty.

First, we see that poverty is correlated with race. Okay. We talked about discrimination in other videos. This is going to go hand in hand with that. We see that Blacks and Hispanics are 3 times more likely to live in poverty than Whites. Poverty is also correlated with age. With children, we see that children are going to be more likely to be members of poor families than the elderly. Okay? And last, we see that poverty is correlated with family composition. So generally, we see that families headed by a single female, so there's no spouse, just a single female and her kids, they are 5 times more likely to be living in poverty. Okay? So these are some of the trends that we see with poverty, and another big factor here is that the conditions of poverty are unfortunately self-reinforcing, we say. Okay. So this is basically the idea that it causes poor people to stay poor. We call this the poverty trap. It's the mechanisms of society that cause poor people to stay poor. Okay? They have trouble getting out of this poverty. One of the reasons is a credit constraint. They have trouble getting loans from banks because since they're poor, the bank sees them as a higher risk and doesn't want to lend them money even if they are capable of paying it back, so they have trouble getting loans, so you can imagine that's going to make it tough. And generally, we see that poor families, these poor neighborhoods usually have schools with lower funding, and then these poor children are going to attend worse schools with the low funding and they're going to have lower human capital, right? Remember that this human capital, this is the education and training that leads to higher wages. It makes them more productive and they're unfortunately in a situation where they're stuck, where they can't go to a good school and they can't get that education just because of the conditions they were born in. So since they were born poor, they end up going to this worse school and getting a worse education, making them worse off in the future, right? So it kind of just it's a cyclical kind of thing and it's super unfortunate. Alright, so let's go ahead and move on to the next page where we'll discuss some more about poverty. Alright, let's do that now.

Here’s what students ask on this topic:

What is the poverty line and how is it determined?

The poverty line is a level of income set by the government to define who is considered poor. It varies based on household size. For example, in 2017, the poverty line for a four-person household in the U.S. was $24,300. If a family's income falls below this threshold, they are considered to be living in poverty. The poverty line helps determine eligibility for various assistance programs and is adjusted periodically to reflect changes in the cost of living.

What are the main factors correlated with poverty?

Poverty is correlated with several factors, including race, age, and family composition. Blacks and Hispanics are three times more likely to live in poverty than whites. Children are more likely to be in poor families compared to the elderly. Additionally, families headed by a single female are five times more likely to be living in poverty. These correlations highlight systemic issues that contribute to the persistence of poverty.

What is the poverty trap and how does it work?

The poverty trap refers to mechanisms that make it difficult for poor people to escape poverty. Key factors include credit constraints, which limit access to loans, and underfunded schools in poor neighborhoods, which result in lower-quality education. These conditions reduce opportunities for economic advancement, perpetuating a cycle where poor individuals remain poor due to systemic barriers.

How does the poverty rate differ among different demographic groups?

The poverty rate varies significantly among different demographic groups. Blacks and Hispanics are three times more likely to live in poverty compared to whites. Children are more likely to be in poor families than the elderly. Single-female-headed households are five times more likely to be in poverty. These disparities highlight the intersection of poverty with race, age, and family structure.

What are in-kind transfers and how do they affect poverty measurements?

In-kind transfers are non-cash benefits provided to individuals, such as food stamps and healthcare. These transfers are not included in the official poverty calculations, even though they effectively increase the recipient's resources. By excluding in-kind transfers, poverty measurements may not fully capture the economic well-being of individuals receiving these benefits.