Poverty: Definition and How It Differs from Inequality and Underdevelopment

What poverty means

Poverty is the condition of lacking the minimum resources needed to live. There is no single way to measure it: international and national institutions use different thresholds, depending on whether they look at a fixed minimum level or at a comparison with the rest of the population.

The term is often mixed up with two related but distinct concepts. Economic inequality is about how income is spread across the people of a country, not how many people fall below a minimum threshold: a country can have relatively few people in poverty and still a large share of income concentrated in a few hands. Underdevelopment, in turn, describes the level of economic and social development of an entire country, looking at a broader set of factors than just the income of its poorest residents. The three ideas are connected, but the institutions that study them use separate indicators: the World Bank measures poverty against an income threshold, Eurostat measures inequality with the Gini index, and the UNDP measures development with the Human Development Index.

Absolute and relative poverty

Absolute poverty is measured against a fixed threshold, independent of a country’s average standard of living. The World Bank uses an international line of $3 a day for extreme poverty; in Italy, ISTAT calculates absolute poverty against the monetary value of a minimum basket of goods and services considered essential.

Relative poverty follows a different logic: it compares a household’s spending or income with the average in its own country. A household can be relatively poor in a rich country while having a higher income, in absolute terms, than a non-poor household in a less wealthy country.

Practical example: according to ISTAT, in 2024 in Italy 8.4% of resident households were in absolute poverty and 10.9% in relative poverty. That is the same population observed against two different thresholds: the percentage changes because the yardstick changes.

Compared with 2023, ISTAT notes that the incidence of relative poverty among individuals rose slightly, from 14.5% to 14.9%, while the household figure held steady at 10.9%: a reminder that a household percentage and an individual percentage can move somewhat differently, since poor households do not all have the same number of members.

Economic inequality: the Gini index

According to Eurostat, the Gini index measures how far a country’s income distribution sits from a perfectly equal split across the whole population. A Gini value of 0 would mean that income is distributed identically among every person; a value of 100 would mean that a single person receives all of the country’s income. In 2024, according to Eurostat, the Gini index for the European Union stood at 29.4.

The Gini index alone does not say how many people live below a poverty line: it measures the shape of the income distribution. That is why a country with relatively contained inequality can still have a significant share of households in absolute poverty. Anyone trying to understand how an economy works as a whole, rather than the choices of a single household or firm, will find common ground with the distinction between microeconomics and macroeconomics: inequality and poverty are both measured at the aggregate level, across a country’s entire economy.

Underdevelopment: looking beyond GDP

According to the UNDP, the United Nations Development Programme, the Human Development Index was created to argue that people and their capabilities, not economic growth alone, should be the main criterion for assessing a country’s development. The index summarizes achievement across three key dimensions: a long and healthy life, measured by life expectancy at birth; education, measured by expected and completed years of schooling; and a decent standard of living.

This sets underdevelopment apart from poverty in the strict sense. A country can have a GDP per capita that is not particularly high and still score well on the health and education dimensions of the Human Development Index, or the reverse. The UNDP does not publish, on its presentation pages for the index, a single numerical benchmark: what it offers is a broader criterion for comparing countries, one that goes beyond average income.

Poor countries in the world

According to the World Bank, the number of people living below the international extreme poverty line, $3 a day, fell from about 2.3 billion in 1990 to 831 million in 2025. That is a decline measured over a trajectory spanning more than three decades, using the same threshold for both years of the comparison.

Within that global total, the World Bank also points to a more specific figure: in 2024, 412 million children aged 17 or younger were living in households below the extreme poverty line in low-income countries. That figure refers to a precise subset of countries, those classified as low-income, not the broader group of developing countries as a whole.