Cycle of poverty

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In economics, the cycle of poverty is the "set of factors or events by which poverty, once started, is likely to continue unless there is outside intervention".

Families trapped in the cycle of poverty, have either limited or no resources. There are many disadvantages that collectively work in a circular process making it virtually impossible for individuals to break the cycle. This occurs when poor people do not have the resources necessary to get out of poverty, such as financial capital, education, or connections. In other words, impoverished individuals do not have access to economic and social resources as a result of their poverty. This lack may increase their poverty. This could mean that the poor remain poor throughout their lives.

The poverty cycle can be called the "development trap" or "poverty trap" when it is applied to countries.

Ruby K. Payne, author of A Framework for Understanding Poverty, distinguishes between situational poverty, which can generally be traced to a specific incident within the lifetimes of the person or family members in poverty, and generational poverty, which is a cycle that passes from generation to generation, and goes on to argue that generational poverty has its own distinct culture and belief patterns.

Measures of social mobility examine how frequently poor people become wealthier, and how often children are wealthier or achieve higher income than their parents.

Causes of the cycle

Chronic general poverty

Poverty can be created or sustained for large numbers of people through general economic conditions, which tend to be self-sustaining. Metrics for these conditions include:

• Low gross domestic product or overall low productivity, failing to produce enough wealth for the population as a whole to escape poverty
• High unemployment, creating poverty for the unemployed and putting downward pressure on wages
• High income inequality, creating poverty by allocating wealth unevenly
• Low social mobility, perpetuating poverty for a given person or family

There are also various poverty metrics that directly indicate its extent, generally involving income, wealth, or both. It can be measured on an absolute scale (which might put almost an entire country's population below the poverty line) or in a relative way, identifying people who are poor compared to others in the same country. 

Countries with chronically low levels of economic development fail to provide opportunities for many individuals to leave poverty. These may be caused by:

• Problems with the means of production:
  • Lack of or poor quality infrastructure
  • Widespread lack of skills needed for employment (including literacy) or high-wage employment
  • Lack of equipment and automation that would boost productivity
• Economic mismanagement, such as regulatory failure
• Widespread corruption
• Inability of the government to guarantee stable market conditions, including physical security and enforceable property rights
• High burden of disease
• Barriers to international trade, possibly including international sanctions

Non-circular causes of poverty

Generally poor economic conditions can also be due to temporary causes, which might not result in a "cycle of poverty" if the economy recovers thereafter. Temporary economic problems can be caused by:

• Recession (for which there are many causes) and the lower-activity portion of the business cycle
• Disasters
  • War, whether through direct destruction or general funding burden
  • Natural disasters, including storms, drought, and earthquakes
  • Epidemics
  • Famine
  • Anthropogenic disasters, including accidents

A one-time event, whether affecting the economy in general or personal in nature, can push a given person or family into poverty, after which the enter "cycle of poverty" which is difficult to escape. Examples of personal events that can have a negative economic impact include:

• The loss of a job or failure of a family-owned business
• A health issue, which can result in lost wages, a permanent disability, or medical debt in countries without free universal health care
• The death of a family member
• An unplanned pregnancy
• Short-term financial mismanagement of personal savings or debt
• A breakup or divorce, if alimony does not compensate for the loss of one partner's income
• A foreclosure or eviction
• An automobile collision or other loss of a vehicle needed to get to work
• Commission of a crime that results in a criminal record and difficulty obtaining work
• Incarceration that results in loss of economic assets and social networks

Factors maintaining personal poverty

Once poor, people can experience difficulty escaping poverty because many things that would allow them to do so require money they don't have, such as:

• Education and retraining with new skills
• Child care which would enable a single parent or second parent to work or take classes
• Transportation to a distant job
• Migration to an area with better economic opportunities
• Starting a new business, which might require market research, technical assistance, and startup funding
• Obtaining land for subsistence farming
• Cure a health condition that prevents work, including diseases of poverty which don't affect people outside of the "cycle of poverty"

Some activities can also cost poor people more than wealthier people:

• Rent - If unable to afford the first month's rent and security deposit for a typical apartment lease, people sometimes must live in a hotel or motel at a higher daily rate.
• Food
  • If unable to afford an apartment with a refrigerator, kitchen, and stove, people may need to spend more on prepared meals than if they could cook for themselves and store leftovers.
  • Buying in bulk (large quantities) is usually cheaper than buying small quantities in multiple transactions, but poor people are less likely to have cash on hand to finance a large purchase of food needed for the more distant future. Poor people are less able to afford delivery or automobile transport of quantities too large to carry on public transit or bicycle.
  • People who live in food deserts without access to fast transportation may buy more expensive food from nearby convenience stores, and have more difficulty transporting perishable goods.
• Banking - People who cannot maintain a minimum daily balance in a savings account are often charged fees by the bank, whereas people with larger amounts of wealth can earn interest on savings and substantial returns from investments. Unbanked people must use higher-cost alternative financial services services, such as check-cashing services for payroll and money orders for transferring to other people. People who have had previous credit problems, such as overdrafting an account, may not be eligible to open a checking or savings account. Major reasons for not opening a bank account include not trusting banks, being concerned about not making a payment due to a bank error or delay, not understanding how banks work, and not having enough money to qualify for a free account.
• Debt - People who have no net savings sometimes have to use high-interest credit cards or other loans to pay for emergency expenses or even daily needs. Interest must be paid on debt, and a lower credit score (which can result from a low income) typically results in a higher interest rate, such as for a subprime mortgage. Payday loans can have an extremely high interest rate, and other forms of debt not typically used by high-income consumers include refund anticipation loans, car title loans, and pawnshops.
• Overdue payments - People who cannot afford to pay all of their bills on time, or who accidentally make a late payment due to waiting until the last possible day can incur late fees not affecting people who can simple schedule automatic payments from savings.
• Furniture - If unable to afford a piece of furniture, a rent-to-own agreement can make it available without having savings, but at a higher long-term cost.
• Transportation - If unable to afford a car, taking public transportation can take longer, effectively an increased cost in the form of lost time. Many poor people must live further away from work in order to find housing they can afford.
• Health care - Though most industrialized countries have free universal health care, in the United States and many developing countries, people with little savings often postpone expensive medical treatment as long as possible. This can cause a relatively small medical condition to become a serious condition that costs more to treat, and possibly causing lots wages due to missed hourly work. (Though poor people may have lower overall personal medical expenses simply because illnesses and medical conditions go untreated, and on average life span is shorter.) Higher-income workers typically have medical insurance which prevents them from experiencing excessive costs and often provides free preventive care for example this reason. In addition to personal savings they can use, higher-income workers are also more likely to be salaried and get sick time that prevents them from losing wages while seeking treatment.
• Government benefits may require paperwork or attendance at mandatory classes that a job wouldn't, effectively an increased cost in the form of lost time per unit of money taken in.

Government policy, government funding, and access to financial services can play a large role in preventing one-time events from pushing people into poverty, and in overcoming barriers to escaping poverty. People who cannot work due to a disability often rely on government assistance, family members, or charities, but may also have personal savings. Many governments have programs to support the elderly, given that many have not saved enough money to last throughout their planned retirement, and that many will experience health problems that prevent them from working. Inability to work can present an insurmountable barrier to exiting poverty if external assistance is insufficient.

Choices and culture

Personal choices and cultural influences can also make it difficult to escape poverty, such as:

• Choosing not to pursue education and skills that could be used to obtain a high-paying job
• A culture that disvalues education
• Low expectations for academic and economic success can be self-fulfilling
• Belief that one is self-limited and destined to remain trapped in poverty
• Belief that one is a victim and powerless to break free from poverty

Discrimination and concentration

Discrimination can make it more difficult to access government programs, to find work, and to access resources and social networks that could help. For a variety of reasons, it is more difficult to escape poverty in areas of concentrated poverty, where poor people may be forced to live by economic circumstance. Racial segregation can represent a combination of both discrimination and concentration.

Generational poverty

Generational poverty is poverty that is inherited across generations. This can happen because:

• Poor parents who know what their children need to succeed academically or economically cannot afford to provide that, such as tuition, books, tutoring, after-school programs, health care, transportation to school, safe housing, clothing, or adequate nutrition.
• Parents who are outside social networks that would be useful for economic advancement cannot introduce those children into those networks.
• Poor parents may pressure older children to drop out of school and work, for immediate wages at the expense of education that could provide higher long-term wages.
• Parents who have themselves not attended charter schools or secondary education may not realize the advantages of attendance, and may not know when or how to apply.
• Poorly educated parents might not know how to nurture the cognitive development of their children, and might be less able to provide educational assistance like help with homework.
• Parents who have made poor personal decisions may be bad role models for success, for example normalizing financial mismanagement or substance abuse.
• Child abuse creates a number of physical and psychological problems that increase the probability of growing up poor, and the vast majority of abusive parents were themselves abused as children.

Family background

A 2002 research paper titled "The Changing Effect of Family Background on the Incomes of American Adults" analyzed changes in the determinants of family income between 1961 and 1999, focusing on the effect of parental education, occupational rank, income, marital status, family size, region of residence, race, and ethnicity. The paper (1) outlines a simple framework for thinking about how family background affects children's family and income, (2) summarizes previous research on trends in intergenerational inheritance in the United States, (3) describes the data used as a basis for the research which it describes, (4) discusses trends in inequality among parents, (5) describes how the effects of parental inequality changed between 1961 and 1999, (6) contrasts effects at the top and bottom of the distribution, and (7) discusses whether intergenerational correlations of zero would be desirable. The paper concludes by posing the question of whether reducing the intergenerational correlation is an efficient strategy for reducing poverty or inequality.

Because improving the skills of disadvantaged children seems relatively easy, it is an attractive strategy. However, judging by American experience since the 1960s, improving the skills of disadvantaged children has proved difficult. As a result, the paper suggests, there are probably cheaper and easier ways to reduce poverty and inequality, such as supplementing the wages of the poor or changing immigration policy so that it drives down the relative wages of skilled rather than unskilled workers. These alternative strategies would not reduce intergenerational correlations, but they would reduce the economic gap between children who started life with all the disadvantages instead of all the advantages.

Another paper, titled Do poor children become poor adults?, which was originally presented at a 2004 symposium on the future of children from disadvantaged families in France, and was later included in a 2006 collection of papers related to the theme of the dynamics of inequality and poverty, discusses generational income mobility in North America and Europe. The paper opens by observing that in the United States almost one half of children born to low income parents become low income adults, four in ten in the United Kingdom, and one-third in Canada. The paper goes on to observe that rich children also tend to become rich adults—four in ten in the U.S. and the U.K., and as many as one-third in Canada. The paper argues, however, that money is not the only or even the most important factor influencing intergenerational income mobility. The rewards to higher skilled and/or higher educated individuals in the labor market and the opportunities for children to obtain the required skills and credentials are two important factors. Reaching the conclusion that income transfers to lower income individuals may be important to children in the here and now, but they should not be counted on to strongly promote generational mobility. The paper recommends that governments focus on investments in children to ensure that they have the skills and opportunities to succeed in the labor market, and observes that though this has historically meant promoting access to higher and higher levels of education, it is becoming increasingly important that attention be paid to preschool and early childhood education.

Lack of jobs due to deindustrialization

Sociologist William Julius Wilson has said that the economic restructuring of changes from manufacturing to a service-based economy has led to a high percentage of joblessness in the inner-cities and with it a loss of skills and inability to find jobs. This "mismatch" of skills to jobs available is said to be the main driver of poverty.

Effects of modern education

Research shows that schools with students that perform lower than the norm are also those hiring least-qualified teachers as a result of new teachers generally working in the area that they grew up in. This leads to certain schools not producing many students that go on to college. Students from these schools that go on to be college graduates are not as skilled as they would be if they had gone to a school with higher-qualified instructors. This leads to education perpetuating a cycle of poverty. People that choose to work in the schools close to them do not adequately supply the school with enough teachers. The schools must then outsource their teachers from other areas. Susanna Loeb from the School of Education at Stanford did a study and found that teachers who are brought in from the suburbs are 10 times more likely to transfer out of the school after their initial year. The fact that the teachers from the suburbs leave appears to be an influential factor for schools hiring more teachers from that area. The lack of adequate education for children is part of what allows for the cycle of poverty to continue. The problem undergoing this is the lack of updating the knowledge of the staff. Schools have continued to conduct professional development the same way they have for decades.

Culture of poverty

Another theory for the perpetual cycle of poverty is that poor people have their own culture with a different set of values and beliefs that keep them trapped within that cycle generation to generation. This theory has been explored by Ruby K. Payne in her book A Framework for Understanding Poverty. In this book she explains how a social class system in the United States exists, where there is a wealthy upper class, a middle class, and the working poor class. These classes each have their own set of rules and values, which differ from each other. To understand the culture of poverty, Payne describes how these rules affect the poor and tend to keep them trapped in this continual cycle. Time is treated differently by the poor; they generally do not plan ahead but simply live in the moment, which keeps them from saving money that could help their children escape poverty. 

Payne emphasizes how important it is when working with the poor to understand their unique cultural differences so that one does not get frustrated but instead tries to work with them on their ideologies and help them to understand how they can help themselves and their children escape the cycle. One aspect of generational poverty is a learned helplessness that is passed from parents to children, a mentality that there is no way for one to get out of poverty and so in order to make the best of the situation one must enjoy what one can when one can. This leads to such habits as spending money immediately, often on unnecessary goods such as alcohol and cigarettes, thus teaching their children to do the same and trapping them in poverty. Another important point Payne makes is that leaving poverty is not as simple as acquiring money and moving into a higher class but also includes giving up certain relationships in exchange for achievement. A student’s peers can have an influence on the child’s level of achievement. Coming from a low-income household a child could be teased or expected to fall short academically. This can cause a student to feel discouraged and hold back when it comes to getting involved more with their education because they are scared to be teased if they fail. This helps to explain why the culture of poverty tends endure from generation to generation as most of the relationships the poor have are within that class.

The "culture of poverty" theory has been debated and critiqued by many people including Eleanor Burke Leacock (and others) in her book The Culture of Poverty: A Critique. Leacock claims that people who use the term, "culture of poverty" only "contribute to the distorted characterizations of the poor." In addition, Michael Hannan in an essay argues that the "culture of poverty" is "essentially untestable." This is due to many things including the highly subjective nature of poverty and issues concerning the universal act of classifying only some impoverished people as trapped in the culture.

Life shocks

2004 research in New Zealand produced a report that showed that "life shocks" can be endured only to a limited extent, after which people are much more likely to be tipped into hardship. The researchers found very little differences in living standards for people who have endured up to 7 negative events in their lifetime. People who had 8 or more life shocks were dramatically more likely to live in poverty than those who had 0 to 7 life shocks. A few of the life shocks studied were:

• Marriage (or similar) break-ups (divorce)
• Forced sale of house
• Unexpected and substantial drop in income
• Eviction
• Bankruptcy
• Substantial financial loss
• Redundancy (being laid off from a job)
• Becoming a sole parent
• 3 months or more unemployed
• Major damage to home
• House burgled
• Victim of violence
• Incarceration
• A non-custodial sentence (community service, or fines, but not imprisonment)
• Illness lasting three weeks or more
• Major injury or health problem
• Unplanned pregnancy and birth of a child

The study focused on just a few possible life shocks, but many others are likely as traumatic or more so. Chronic PTSD, complex PTSD, and depression sufferers could have innumerable causes for their mental illness, including those studied above. The study is subject to some criticism.

Tracking in education

History in the United States has shown that Americans saw education as the way to end the perpetual cycle of poverty. In the present, children from low to middle income households are at a disadvantage. They are twice as likely to be held back and more likely not to graduate from high school. Recent studies have shown that the cause for the disparity among academic achievement results from the school's structure where some students succeed from an added advantage and others fail as a result of lacking that advantage. Educational institutions with a learning disparity are causing education to be a sustaining factor for the cycle of poverty. One prominent example of this type of school structures is tracking, which is predominantly used to help organize a classroom so the variability of academic ability in classes is decreased. Students are tracked based on their ability level, generally based on a standardized test after which they are given different course requirements. Some people believe that tracking "enhances academic achievement and improves the self-concept of students by permitting them to progress at their own pace."

The negative side is that studies have shown that tracking decreases students' opportunity to learn. Tracking also has a disproportionate number of Latinos and African Americans that have low socioeconomic status in the lower learning tracks. Tracking separates social classes putting the poor and minority children in lower tracks where they receive second-rate education, and the students that are better off are placed in upper tracks where they have many opportunities for success. Studies have found that in addition to the higher tracks having more extensive curriculum, there is also a disparity among the teachers and instructional resources provided. There appears to be a race/class bias which results in intelligent children not receiving the skills or opportunities needed for success or social/economic mobility, thus continuing the cycle of poverty. There is an overall perception that American education is failing and research has done nothing to counter this statement, but instead has revealed the reality and severity of the issue of the existence of tracking and other structures that cause the cycle of poverty to continue.

Theories and strategies for breaking the cycle

While many governmental officials are still trying to find an answer to poverty, many states and localities are making an effort to break the cycle. Mayor Bloomberg of New York City has been advocating a plan where parents are paid up to $5,000 a year for meeting certain goals that will better their lives. This policy was modeled after a Mexican initiative that aims to help poor families make better decisions that will help them in the long-term and break cycle of poverty and dependence that have been known to last for generations. In addition, many states also have been making an attempt to help break the cycle. For example, a bill has been proposed in the California Assembly that "would establish an advisory Childhood Poverty Council to develop a plan to reduce child poverty in the state by half by 2017 and eliminate it by 2027". Even when the plan has poverty reduction as the goal, a rise in child poverty might be the reality for many states as it was in Connecticut. States are attempting to not only decrease the number of people in the cycle of poverty, but to also adjust the stringent work requirements that resulted from Congress’s welfare reform. The tougher work restrictions have upset many poverty advocates that believe the new regulations prevent individuals that are vulnerable or that lack skills from preparing for work. California Democratic Representative McDermott believes as a result of this and other effects of the new limitations, it has been harder for individuals to escape a life of poverty.

Relatively modest increases in benefit levels for programs that assist nonworking individuals and low-income workers might well be sufficient to bring the United States into line with...other affluent nations in its degree of poverty reduction. Lane Kenworthy

In his book Children in Jeopardy: Can We Break the Cycle, Irving B. Harris discusses ways in which children can be helped to begin breaking the cycle of poverty. He stresses the importance of starting early and teaching children the importance of education from a very young age as well as making sure these children get the same educational opportunities as students who are richer. Family values such as nurturing children and encouraging them to do well in school need to be promoted as well as a non-authoritarian approach to parenting. Harris also discusses the importance of discouraging teenage pregnancy and finding ways in which to decrease this phenomenon so that when children are born they are planned and wanted and thus have a better chance at breaking the cycle of poverty.

It has been suggested by researchers like Lane Kenworthy that increasing welfare benefits and extending them to non-working families can help reduce poverty as other nations that have done so have had better results.

The Harlem Children's Zone is working to end generational poverty within a 100-block section of Harlem using an approach that provides educational support and services for children and their families from birth through college. This approach has been recognized as a model by the Obama administration's anti-poverty program.

Effects on children

Children are most at the mercy of the cycle of poverty. Because a child is dependent on his or her guardian(s), if a child's guardian is in poverty, then they will be also. It is almost impossible for a child to pull him or herself out of the cycle due to age, lack of experience, lack of a job, etc. Because children are at such a young and impressionable age, the scars they gain from experiencing poverty early in life inevitably carry on into their adult life. "Childhood lays the foundations for adult abilities, interests, and motivation." Therefore, if they learn certain poverty-related behaviors in childhood, the behaviors are more likely to perpetuate. 

Studies have shown that household structure sometimes has a connection to childhood poverty. Most studies on the subject also show that the children that are in poverty tend to come from single-parent households (most often matriarchal). In 1997, nearly 8.5 million (57%) poor children in the US came from single-parent households. With the rate of divorce increasing and the number of children born out of wedlock increasing, the number of children that are born into or fall into single-parent households is also increasing. However, this does not mean that the child/children will be impoverished because of it. 

According to Ashworth, Hill, & Walker (2004), both urban and rural poor children are more likely to be isolated from the nonpoor in schools, neighborhoods, and their communities. Human nature is to have relationships with others but when a child is isolated due to their socioeconomic status, it's hard to overcome that when the status doesn't improve. Therefore, poor children also have more tense relationships which sometimes results in abnormal behavior, acting out, or other unexplained behaviors. 

There have been programs developed to specifically address the needs of poor children. Francis Marion University's Center of Excellence to Prepare Teachers of Children of Poverty has a number of initiatives devoted to equipping teachers to be more effective in raising the achievement of children of poverty. Located in South Carolina, the Center provides direct teacher training as well as facilitates research in the area of poverty and scholastic achievement. A resource that is out there to try and help communities undergoing poverty are places like Head Start. Head Start is a program for low income families that provides early childhood education as well as parent involvement. Results show that attending these programs increases children’s academic outcomes. The problem is that in high poverty areas this is supposed to be a helpful resource, but they start to hold lower quality due to lack of funds to keep places updated.

Oftentimes the communities in which impoverished children grow up in are crime ridden areas, examples of these areas are Harlem and the Bronx. These areas have effects on children as they are often exposed to crime and maltreatment at a young age, which is proven to reduce a child's ability to learn by up to 5%. Oftentimes these youth get caught up in the crime that goes on all around them, this involvement only worsens the effects of the cycle as they are often incarcerated or killed in many types of gang violence.