Poverty: the seven-headed dragon of humanity
Written by Lynn Hamerlinck on 23 June 2021
What if we divided all the money in the world equally amongst everyone? Would poverty finally become an ugly sore from the past? Probably not, as inequality is much more than what we have in our bank accounts.
As a crowdfunding platform for companies in emerging markets, Lendahand works on closing the funding gap and redistributing some of the world’s money by bringing people who need access to finance together with investors who want to make an impact with their money.
We put impact investing to work in the fight against poverty. It enables businesses to grow, hire more employees, and provide for their local communities, all while you can potentially get a modest return on your investment. We strongly believe this is part of the solution and can make a real difference.
Poverty comes in so many shapes and forms, and we all know it’s a real problem that causes severe problems for hundreds of millions of people worldwide. It’s time to identify this huge hurdle we’re dealing with as we prepare ourselves to face and defeat this seven-headed dragon.
In simplest terms, poverty is not having enough money or access to resources to enjoy even a basic standard of living. It manifests itself in the lack of access to healthcare, education, water, or sanitation facilities, and many other ways.
Relative Poverty: Poor people in rich countries
On the whole, poverty equals exclusion. In more economically developed countries, poverty means being excluded from what constitutes normal daily life for most people. Think about living in the Netherlands and not being able to access the internet to look for jobs or make an appointment with the Gemeente. What if your only hope for proper clothing was if it was donated to you, and paying for advanced education for you or your children was absolutely out of the question.
This relative poverty is when you live on a daily income that’s 50% below that of the median household income in your own country. Fixing this type of poverty is about empowering everyone with the chance to enjoy the same basic living standards that are needed in 2021, so that everyone has an equal opportunity to live their life to their fullest potential.
A country’s progress in fighting relative poverty is usually tied to its economic growth, although it can also be effectively permanent for many, since certain families are trapped in a low-income box.
Absolute Poverty: Living on the edge
When a person or family doesn't have access to the most basic needs like food, safe and adequate housing, safe drinking water, or electricity, this is called absolute poverty.
The approach to measuring absolute poverty is to compare households on a set income level that varies from country to country, depending on its economic conditions. However, people who live below the poverty line will not benefit immediately from economic growth in their country.
When the relative-absolute approach is used to measure poverty, persistent poverty also needs to be mentioned. This is when households receive 50 or 60% less income than average incomes every 2 out of 3 years. Since long-term poverty has more impactful consequences on economic and social conditions, persistent poverty is an important concept to keep in mind.1
How to measure the unmeasurable
We know that:2
- 689 million people live in extreme poverty on less than €1.50 a day
- 4 out of 5 people below the international poverty line live in rural areas
- 50% of those in poverty are children
Recently the COVID-19 pandemic has reversed the gains in global poverty for the first time in a generation. About 120 million additional people are living in poverty due to the pandemic, with the total expected to rise to about 150 million by the end of 2021.
Living in extreme poverty means surviving on less than €1.50 a day in low-income countries. Since the poverty line varies from nation to nation, the World Bank also defines extreme poverty as living on less than €2.60 in middle-income countries and €4.50 in wealthier ones.
The need for continued focus on extreme poverty is obvious, yet it is important to stress that poverty does not end when a person crosses the monetary threshold of a certain number of euros a day. Your life doesn’t magically improve and all your problems don't vanish just because you start making €2/day instead of €1.50.
The poverty line indicates the minimum level of income deemed adequate in a particular country and is calculated by finding the total cost of all the essential resources that an average human adult consumes in one year. Thus, national poverty lines can be used to measure trends in countries but are not to be compared across countries.3
Unfortunately, just comparing income and expenditure wouldn’t give a full and fair view of poverty worldwide since defining poverty is not just a matter of economics. It is also affected by society and politics. For example, the WorldBank found that more than 40 percent of the global poor live in economies affected by fragility, conflict, and violence.
Poverty is complex since it doesn’t mean identical consequences for all people. There are four factors for poverty that can be differentiated to understand the nature of it:4
- Situational Poverty: This type of poverty is temporary and arises from calamities such as earthquakes, floods, or severe health problems.
- Generational or Chronic Poverty: This sort of poverty is passed down from generation to generation. The following two to three generations are born into poverty and typically without the resources to escape it.
- Rural Poverty: This type of poverty happens in regions with a population of fewer than 50,000 people. Because of the area's smaller population, it lacks essential services and facilities, contributing to their financial difficulties.
- Urban Poverty: This sort of poverty occurs in places with a population of more than 50,000 people. Families can be under much stress because of overcrowding and lack fundamental necessities such as affordable homes.
Breaking the cycle
Some believe that by mere hard work or ambition people can find a way out of poverty. However, statistics show that people born into poverty are more likely to remain poor no matter how hard they work and try. If the economic system is working against them almost like gravity, the majority will not be able to find their way out of poverty. This is what sustains the cycle of poverty.
Poverty isn’t blanketly determined by whether or not a country has enough natural resources either. The DRC is proof of this since it is one of the richest countries in terms of natural resources, yet one of the poorest countries in the world in terms of income. And even though Kenya is showing significant economic growth and development, many Kenyans struggle to meet their basic needs.
So how can we break this cycle and give everyone the chance to enjoy the same living standards and give everyone an equal opportunity to live their lives to their full potential?
Five years ago, world leaders agreed to the 17 Sustainable Development Goals of the United Nations. These goals seek to create a better world by 2030. Using synergy and the balance of the development of social, economic, and environmental sustainability, the hope is that action taken across broad areas will contribute to the achievement of Goal #1: Ending poverty in all its forms everywhere.
While poverty may seem like a problem that will always be with us, the encouraging truth is that we’re getting closer than ever to ending extreme poverty across the globe, with countries, organizations, and companies all working together towards the same goal. Our goal with Lendahand is to bring like-minded people together who want to join the fight against poverty.
You may feel like you don’t have enough money to make a difference in a sustainable way, but that’s where the power of crowdfunding comes in. With an investment as small as €50, you can join over 7,000 other investors, and by putting your money together, your money can make a real difference in emerging markets. Check out our projects page to see the types of companies you can invest in.
1 Habitat for Humanity
4 Teaching with Poverty in Mind - Eric Jensen