Poverty Redefined as Low Consumption and Low Wealth, not just Low Income

Abstract

This paper deals with two connected issues - how best to measure financial poverty and the psychological or subjective consequences of poverty. Measures of poverty are usually based only on low income. Arguably, this is conceptually incorrect; these measures lack validity. To be poor is to have a low material standard of living - involuntarily. So measures of poverty should probably also take account of household consumption and wealth. If a household has an adequate current level of consumption, it should not be classified as poor right now, even if its income is low. Similarly, if it has substantial wealth (net worth), it is arguable that it should not be viewed as poor because it could draw down wealth to boost current consumption. Data are drawn from Australian (HILDA) and German (SOEP) national socioeconomic panel surveys.