March 2001

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Defining True Poverty

by Chris Sarlo

The purpose of a poverty line is, primarily, to determine how many people in our society experience genuine deprivation. While there is some debate about what constitutes genuine deprivation, common usage of the term "poverty" compels us to focus attention on the lack of the necessities of life. It has been my argument that poverty is about the absence of basic needs and not about being relatively less well off. Poverty is different than inequality.

The basic needs poverty line that I have developed and which is the subject of a forthcoming Fraser Institute Critical Issues Bulletin entitled "Measuring Poverty in Canada," attempts to estimate the amount of genuine deprivation in this country. These poverty lines are determined by summing the costs of a list of essential items (food, shelter, clothing, health care, home supplies and furnishings, personal hygiene items, essential transportation, and local telephone service). In the year 2000, the poverty line for a single person varied from about $7,500 to just over $10,000, depending on the city. For families of two, the range was between $11,000 and almost $16,000, and for families of four, the range was between $16,000 and $22,000. These poverty lines are not very high. They exclude any reference to amenities and common luxuries that many people have. Again, the intent is to find out how many Canadians cannot even afford the basic necessities.

The spareness and stringency of the poverty line should not be confused with a lack of compassion. Poverty lines are not allowances for the poor. They are not goals that we want for the poor. They are simply a useful tool to discover something important about our society—the number who suffer genuine deprivation. We would expect, then, that people living below the poverty line will lack one or more of their basic needs and will clearly be poor.

Each time that I examine the estimates of poverty in Canada, however, I find some problems with the data that suggests that some of those represented as being genuinely deprived might not be. Other, collateral information leads me to at least have some healthy scepticism about the validity of my estimate. It suggests, more than anything else, that the data from Statscan surveys are flawed and cannot be relied on to accurately reflect living standards in all cases.

The latest information about incomes, for example, comes from Statistics Canada’s Survey of Household Spending (SHS) for 1998. This survey is a random sample of some 16,000 households which represent the Canadian population. Examining just households composed of two or more persons and using a basic needs poverty line of $15,000 (an approximate average annual value for families in 1998), I used this SHS database to find out more about how the poor lived.

Broadly speaking, families with total reported incomes below $15,000 had an average family size of 2.5 persons and spent about $18,100 in 1998. The (average) expenditures by these poor families included: $450 on restaurant meals, $121 on child care, $117 on pets, $2,285 on private transportation (mainly an owned automobile), $1,162 on recreation of which $379 was spent on home entertainment, $738 on education, $644 on tobacco and alcohol, and $85 on games of chance. It is worth emphasizing that these are average values. Some households will be spending less on these items, and some more.

In addition, it is instructive to examine the facilities and consumer durable goods owned by these poor households. Table 1 displays the ownership of key household facilities (durable appliances) in 1998 by those families with reported incomes below $15,000, as drawn from the SHS. Again, there is room for scepticism that all the households here are impoverished.

The point of this exercise is not that the poor shouldn’t have amenities, but that there is a real question as to whether someone is poor if they do have them. There are scenarios in which poverty status and amenity ownership might be consistent. One explanation, for example, might be that some of the poor were given items from others, or that they acquired them before falling into poverty. There may be other explanations for some of the cases. However, we still have the spending information, which tells us that the poor, despite their apparent deprived status, engage in spending that goes beyond basic necessities. Reasonable people might doubt that all of those counted as poor are in fact genuinely deprived. The problem, to repeat, is with flawed data. This is a problem that all poverty researchers face in attempting to reliably determine the true incidence of poverty in the nation. Reported income is of less and less value in revealing how people, especially low-income people, live.

Chris Sarlo teaches economics at Nipissing University in North Bay, ON. He is the author of Poverty in Canada, published by The Fraser Institute.

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