Tuesday, April 29, 2008

The Definition of Rich and Poor

What does it mean to be rich and what does it mean to be poor? When we think of a rich list, we instinctively think in terms of wealth. i.e. how much a person's assets is worth. See: top 10 richest people in the world list.

Yet, often when these reports are published, you will here the rich claim that they don't have that much money; ot at least it is not at there disposal.

However, when we define 'poor' we think in terms of income. An income below a certain level. But, not everybody with low incomes would be classed as poor.
  • Wives of a rich husband.
  • Students living with wealthy parents.
  • Professionals with the capacity to earn a lot of money. e.g. Lawyers may leave university with debts and no current income, but you wouldn't classify a trained lawyer as poor.
  • Old People who have paid off their mortgage. If you can live rent free and low expenses you can get buy on a small income quite happily.
Similarly people with moderate incomes can still struggle to make ends meet.
  • For example, a single parent with 5 kids, large mortgage and council tax.

Implications of Difficulties in Measuring Poverty and Effective living standards.
  • Minimum wages often benefit second income earners, e.g. students living at home, women with a partner earning more. Therefore, a minimum wage is limited in its ability to tackle poverty.
  • A high salary is still compatible with low living standards. When I got my mortgage I was paying £1,000 in mortgage payments and council tax. This was more than 50% of my gross income!. A pensioner with a salary of £15,000 may appear to be worse off than a young person with income of £20,000. But rent can easily vary by £10,000 a year.
  • Wealth inequality. There is a big advantage to owning a house in that you can earn effective rent from the asset. However, most people don't see a house in this terms. They just see it as wealth locked up in bricks. But, if you own a house and pay off the mortgage. You can live rent free; which could be equivalent to saving £10,000 a year in terms of less expenditure. When Looking at incomes we need to consider the ability to improve their earning potential in the future. E.g. do they have skills and qualifications to get a better paid job.

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