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How is poverty measured?

The poverty line was first established in 1964 by the federal government as a measure of 'need'. The measure was based on the assumption that a poor family spends one-third of their budget on food. The measure is an estimate of the cost of an "economy food plan," essentially how much food is required for temporary use, and then multiplying this cost by three. The poverty level is readjusted annually by the Consumer Price Index to account for inflation, but the logic and assumptions for the estimate have remained the same since 1964. The official poverty line is the same across the 48 contiguous states (Hawaii and Alaska have different measures). In 2009 the poverty line for a family of four is $22,050. In 2000, the poverty line for a family of four was $17,050. Critics of the poverty line point-out that some of the assumptions used to create the measure are outdated. Today, other costs take up larger portions of families' budgets: for example, housing costs; transportation costs; health insurance and medical costs; and childcare to name a few. Also the measure ignores the wide regional variation in the cost of living. Many social scientists argue that if current social and economic considerations were part of the assumptions behind the logic of the poverty measure, the official poverty line would be at least 50% higher than the current measure: the nation's gauge of poverty has worn out.

easuring Poverty
Relative Income Poverty | Relative Deprivation | Consistent Poverty | Other Measures More Information By measuring poverty we can find out how much poverty exists in our society, identify which groups are most affected by poverty and monitor changes in its level and distribution. The most common method of measuring poverty is by a survey in which a representative sample of people are asked to answer questions on their income and spending. A person is considered poor if either income or spending falls below some minimum level that represents basic needs in each society. This is called the poverty line. The poverty line is not the same everywhere because it is relative to what is the norm in a particular country. In Ireland, poverty data is collected by the Central Statistics Office using the EU Survey on Income and Living Conditions (EU-SILC) which is conducted annually. The measures most commonly used by the CSO to calculate the number of people in poverty are Relative Income Poverty and Consistent Poverty. Using a combination of these measures gives us a more comprehensive picture of poverty in Ireland.

Relative Income Poverty

This is also known as relative poverty, income poverty or risk of poverty. It is measured by setting a relative income poverty line, which shows how an individual's or household's income compares to the average. This line is usually set at a level between 40% and 70% of the average income. Often, median income may be used rather than mean or average income as it gives a more accurate reflection of income levels - average income figures tend to be distorted by very high incomes at the top end of the scale. In Ireland, relative income poverty is measured by calculating the median income - the mid-point on the scale of all incomes in the State from the highest to the lowest - and setting the line at 60% of the median. People whose incomes fall below this line are said to be at risk of poverty. The most recent figures show 14.1% of the population at risk of poverty. Back to Top
Relative Deprivation

This takes account of access to resources other than income. A deprivation index of items and activities that are generally taken to be the norm in a particular society is compiled, usually by the organisation responsible for collecting poverty data. People who are denied, through lack of income, items or activities on this list are regarded as experiencing relative deprivation. It is important to distinguish between enforced deprivation such as this and people making choices not to have these items. In Ireland, 11 basic items are used to construct the deprivation index:

Without heating at some stage in the last year Unable to afford a morning, afternoon or evening out in the last fortnight Unable to afford two pairs of strong shoes Unable to afford a roast once a week Unable to afford a meal with meat, chicken or fish every second day Unable to afford new (not second-hand) clothes Unable to afford a warm waterproof coat Unable to afford to keep the home adequately warm Unable to afford to replace any worn out furniture Unable to afford to have family or friends for a drink or meal once a month Unable to afford to buy presents for family or friends at least once a year

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Consistent Poverty

This is also known as the combined income-deprivation measure of poverty. It combines relative income poverty with relative deprivation. People whose income falls below the relative income poverty line and who also experience relative deprivation are regarded as living in consistent poverty. This is one of the methods used to measure poverty in Ireland: the figure for relative or at risk of poverty is combined with the deprivation indicators above to calculate the rate of consistent poverty, which is currently 5.5% of the population. Back to Top
Other Measures

Apart from the measures above which are commonly used in Ireland and Europe, a number of other measures are used internationally: Budget Standard Approach: a poverty line is calculated based on the cost of a specific basket of goods and services that are considered by experts, to represent a basic living standard. Food Ratio Method: where the poor are distinguished from the non-poor by the proportion of their money spent on necessities such as food, clothes and shelter. Social Security Poverty Line: when lowest level of social welfare payment is used as equivalent to a poverty line. United Nations Poverty Index: combines measures such as life expectancy, literacy, long-term unemployment and relative income. Back to Top
More Information

Our Statistics on Poverty page has pointers to other sources of statistical information on social exclusion in Ireland, such as housing, social welfare and comparative data. The Central Statistics Office has comprehensive information on the EU-SILC survey, the methodologies used, and the results to date on its website at www.cso.ie/eusilc. Prior to 2003, poverty data was collected by the Economic and Social Research Institute using the Living in Ireland Survey (LIS). Information on the LIS is available on the ESRI website www.esri.ie. Note the results of the LIS are not directly comparable with EU-SILC as the survey methods are different.

Choosing and Estimating a Poverty Line

Once an aggregate income, consumption or non-monetary measure is defined at the household or individual level, the next step is to define one or more poverty lines. Poverty lines are cut-off points separating the poor from the non-poor. They can be monetary (e.g. a certain level of consumption) or non-monetary (e.g. a certain level of literacy). The use of multiple lines can help in distinguishing different levels of poverty. There are two main ways of setting poverty linesin a relative or absolute way:

How to measure poverty: Define welfare measures Choose and estimate a poverty line Choose and estimate a poverty indicator

Relative poverty lines: These are defined in relation to the overall distribution of income or consumption in a country; for example, the poverty line could be set at 50 percent of the countrys mean income or consumption. Absolute poverty lines: These are anchored in some absolute standard of what households should be able to count on in order to meet their basic needs. For monetary measures, these absolute poverty lines are often based on estimates of the cost of basic food needs (i.e., the cost a nutritional basket considered minimal for the healthy survival of a typical family), to which a provision is added for non-food needs. For developing countries, considering the fact that large shares of the population survive with the bare minimum or less, it is often more relevant to rely on an absolute rather than a relative poverty line. Different methods have been used in the literature to define absolute poverty lines (see Deaton 1997, Ravallion and Bidani 1994, and Ravallion 1994). o The food-energy intake method defines the poverty line by finding the consumption expenditures or income level at which a persons typical food energy intake is just sufficient to meet a predetermined food energy requirement. If applied to different regions within the same country, the underlying food consumption pattern of the population group just consuming the necessary nutrient amounts will vary. This method can thus yield differentials in poverty lines in excess of the cost-of-living differential facing the poor. o The Cost of Basic Needs method values an explicit bundle of foods typically consumed by the poor at local prices first. To this, a specific allowance for nonfood goods, consistent with spending by the poor, is added. However defined, poverty lines will always have a high arbitrary element; for example, the calorie threshold underlying both methods might be assumed to vary with age.

Alternative poverty lines are also sometimes used. They can be set on the basis of subjective or self reported measures of poverty. Alternatively, one can combine absolute and relative poverty lines. This technique allows to take inequality and the relative position of households into account while recognizing the importance of an absolute minimum below which livelihood is not possible.

Ultimately, the choice of a poverty line is arbitrary. In order to ensure wide understanding and wide acceptance of a poverty line, it is therefore important to ensure that the poverty line chosen does resonate with social norms (with the common understanding of what represents a minimum). For example, in some countries, it might make sense to use the minimum wage or the value of some existing benefit which is widely known and recognized as representing a minimum. Using qualitative data could also be useful to decide what goods would go in the basket of basic needs (when constructing an absolute poverty line). For comparisons over time, the stability and consistency of the poverty line need to be ensured.

he Human Poverty Index (HPI) was an indication of the standard of living in a country, developed by the United Nations (UN) to complement the Human Development Index (HDI) and was first reported as part of the Human Development Report in 1997. It was considered to better reflect the extent of deprivation in developed countries compared to the HDI.[1] In 2010 it was supplanted by the UN's Multidimensional Poverty Index. The HPI concentrates on the deprivation in the three essential elements of human life already reflected in the HDI: longevity, knowledge and a decent standard of living. The HPI is derived separately for developing countries (HPI-1) and a group of select high-income OECD countries (HPI-2) to better reflect socio-economic differences and also the widely different measures of deprivation in the two groups

Causes and Effects of Poverty


Any discussion of social class and mobility would be incomplete without a discussion of poverty, which is defined as the lack of the minimum food and shelter necessary for maintaining life. More specifically, this condition is known as absolute poverty. Today it is estimated that more than 35 million Americansapproximately 14 percent of the populationlive in poverty. Of course, like all other social science statistics, these are not without controversy. Other estimates of poverty in the United States range from 10 percent to 21 percent, depending on one's political leanings. This is why many sociologists prefer a relative, rather than an absolute, definition of poverty. According to the definition of relative poverty, the poor are those who lack what is needed by most Americans to live decently because they earn less than half of the nation's median income. By this standard, around 20 percent of Americans live in poverty, and this has been the case for at least the past 40 years. Of these 20 percent, 60 percent are from the working class poor.

Causes of poverty
Poverty is an exceptionally complicated social phenomenon, and trying to discover its causes is equally complicated. The stereotypic (and simplistic) explanation persiststhat the poor cause

their own povertybased on the notion that anything is possible in America. Some theorists have accused the poor of having little concern for the future and preferring to live for the moment; others have accused them of engaging in self-defeating behavior. Still other theorists have characterized the poor as fatalists, resigning themselves to a culture of poverty in which nothing can be done to change their economic outcomes. In this culture of povertywhich passes from generation to generationthe poor feel negative, inferior, passive, hopeless, and powerless. The blame the poor perspective is stereotypic and not applicable to all of the underclass. Not only are most poor people able and willing to work hard, they do so when given the chance. The real trouble has to do with such problems as minimum wages and lack of access to the education necessary for obtaining a better-paying job. More recently, sociologists have focused on other theories of poverty. One theory of poverty has to do with the flight of the middle class, including employers, from the cities and into the suburbs. This has limited the opportunities for the inner-city poor to find adequate jobs. According to another theory, the poor would rather receive welfare payments than work in demeaning positions as maids or in fast-food restaurants. As a result of this view, the welfare system has come under increasing attack in recent years. Again, no simple explanations for or solutions to the problem of poverty exist. Although varying theories abound, sociologists will continue to pay attention to this issue in the years to come.

The effects of poverty


The effects of poverty are serious. Children who grow up in poverty suffer more persistent, frequent, and severe health problems than do children who grow up under better financial circumstances.

Many infants born into poverty have a low birth weight, which is associated with many preventable mental and physical disabilities. Not only are these poor infants more likely to be irritable or sickly, they are also more likely to die before their first birthday. Children raised in poverty tend to miss school more often because of illness. These children also have a much higher rate of accidents than do other children, and they are twice as likely to have impaired vision and hearing, iron deficiency anemia, and higher than normal levels of lead in the blood, which can impair brain function.

Levels of stress in the family have also been shown to correlate with economic circumstances. Studies during economic recessions indicate that job loss and subsequent poverty are associated with violence in families, including child and elder abuse. Poor families experience much more stress than middle-class families. Besides financial uncertainty, these families are more likely to be exposed to series of negative events and bad luck, including illness, depression, eviction, job loss, criminal victimization, and family death. Parents who experience hard economic times may become excessively punitive and erratic, issuing demands backed by insults, threats, and corporal punishment.

Homelessness, or extreme poverty, carries with it a particularly strong set of risks for families, especially children. Compared to children living in poverty but having homes, homeless children are less likely to receive proper nutrition and immunization. Hence, they experience more health problems. Homeless women experience higher rates of low-birth-weight babies, miscarriages, and infant mortality, probably due to not having access to adequate prenatal care for their babies. Homeless families experience even greater life stress than other families, including increased disruption in work, school, family relationships, and friendships. Sociologists have been particularly concerned about the effects of poverty on the black underclass, the increasing numbers of jobless, welfare-dependent African Americans trapped in inner-city ghettos. Many of the industries (textiles, auto, steel) that previously offered employment to the black working class have shut down, while newer industries have relocated to the suburbs. Because most urban jobs either require advanced education or pay minimum wage, unemployment rates for inner-city blacks are high. Even though Hispanic Americans are almost as likely as African Americans to live in poverty, fewer inner-city Hispanic neighborhoods have undergone the same massive changes as many black neighborhoods have. Middle and working class Hispanic families have not left their barrio, or urban Spanish-speaking neighborhood, in large numbers, so most Hispanic cultural and social institutions there remain intact. In addition, local Hispanic-owned businesses and lowskill industries support the barrio with wage-based, not welfare-based, businesses. Climbing out of poverty is difficult for anyone, perhaps because, at its worst, poverty can become a self-perpetuating cycle. Children of poverty are at an extreme disadvantage in the job market; in turn, the lack of good jobs ensures continued poverty. The cycle ends up repeating itself until the pattern is somehow broken.

Feminist perspective on poverty


Finally, recent decades have witnessed the feminization of poverty, or the significant increase in the numbers of single women in poverty alone, primarily as single mothers. In the last three decades the proportion of poor families headed by women has grown to more than 50 percent. This feminization of poverty has affected African-American women more than any other group.

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Government Policies towards Poverty


In this note we consider the options available to the government if it wishes to achieve a greater degree of equity in the distribution of income and wealth. Policy options to change the distribution of income and wealth There are many policy options available to a government if it wants to change the final distribution of income and wealth in a country. The main strategies that the Labour government has chosen to reduce poverty since it was elected in May 1997.
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The introduction of a National Minimum Wage and a series of increases in its value The launch of the Working Tax Credit and Child Tax Credit designed to boost work incentives for low-income households who opt to work full-time or part-time Provision of a Minimum Income Guarantee for Pensioners and increases in the real value of Winter Fuel Payments designed to alleviate fuel poverty among old people Active employment policies such as the introduction of New Deals for young people, the long-term unemployed, lone parents and disabled people a long-term strategy designed to increase employment opportunities

In addition the government already has in place a progressive system of income tax and welfare benefits that helps to reduce the huge differences between original and final disposable incomes between different groups of the population. Pensioner Poverty in the UK A new report has found that the proportion of pensioners in Britain living in relative poverty has fallen but more needs to be done to boost benefit take-up. Data from the National Audit Office shows that the percentage of pensioners living in poverty had fallen from 27% in 1994 to 17% in 2005. Among the government policies introduced in recent years to alleviate poverty among the elderly, means-tested benefits such as Pension Credit have played a key role in cutting poverty amongst the elderly but take-up of the benefit remains below expectations. 6bn was paid out in Pension Credit to 2.7 million pensioner households in 2004/05. But only less than 70% of those people eligible to claim pension credit receive it, below the government's target of 73%. Source: Adapted from news reports, June 2006 Income redistribution through the tax and benefit system The effects of taxes and benefits by quintile groups on households, 2005

Quintile groups of all households Bottom ( per year) Original income plus cash benefits Gross income less direct taxes Disposable income 4 280 11 200 21 580 6 410 6 210 4 770 10 690 17 410 26 350 1 030 2 270 4 650 9 660 15 140 21 690 2nd 3rd 4th

Ratio All Top/Bottom quintile Top households

34 460 66 330 2 800 1 380 37 260 67 710 7 910 16 760 29 360 50 960

27 570 4 310 31 880 6 520 25 360

15.5 6.33 5.28

less indirect taxes 2 860 3 410 4 570 5 510 7 330 4 730 Post-tax income 6 800 11 730 17 130 23 850 43 630 20 630 6.4 plus benefits in kind 6 460 5 780 5 420 4 470 3 780 5 180 Final income 13 250 17 520 22 550 28 320 47 410 25 810 3.59 What are the effects of the tax and benefit system on the final distribution of income in the UK? This summary table is published each year by the Government and gives us an idea of the progressiveness of the tax and benefits system for households in different income bands. Original income comes from wages and salaries in work, self-employment income, investment incomes et al. To which we add entitlements to welfare benefits in cash not that the lowest income households are those most entitled to these benefits, some of which are means-tested. The ratio of the original income of the richest fifth of households to the poorest fifth is nearly 16. By the time that government welfare benefits have been included, that ratio falls to less than 7.1. Then we include the effects of direct taxation mainly income tax and national insurance which acts as a progressive form of taxation a higher income group pays a higher % of their incomes in tax. This gives us disposable income - the ratio of the disposable income of the richest fifth of households to the poorest fifth is 5.3. Our final transfer is to include the effects of indirect taxes and estimated benefits in kind from state provision of education, the NHS and housing subsidies to give a figure for final income. The final result is that our ratio between richest and poorest quintiles falls further to 3.6. Main benefits in kind

Health services Education Travel subsidies Housing subsidies School meals and welfare milk

Indirect taxes fall most heavily on poorest households. In 2001-02, they accounted for 34% of

disposable income whereas for the highest income quintile, the percentage was just 14%. This suggests that indirect taxation overall has a regressive effect on the distribution of income in the UK. Percentage shares of household income and Gini coefficients, 2005

Percentage shares of equivalised income for all households

Original income Quintile group Bottom 2nd 3rd 4th Top All households Decile group Bottom Top Gini coefficient for the UK 3 8 15 24 50 100

Gross income 7 11 16 23 43 100

Disposable income 8 13 17 22 41 100

Post-tax income 7 12 16 22 43 100

1 32 51

3 27 36

3 26 32

2 27 36

The government has focused its policies in the following areas


Promoting higher levels of employment through increased spending on labour market training and subsidies for businesses who take on people through the New Deal programme. Attempting to reduce the skills gap existing in the labour market workers with low grade skills are suffering badly in todays ever-changing labour market. Switching towards means-tested benefits rather than universal benefits. Offering specific financial help to certain groups. Improving work incentives for the low paid. Attempts to reduce child poverty e.g. by increasing the value of child benefit.

There has been some limited progress in attacking some of the causes of poverty. For example the number of children living in poor households fell by 200,000 in 2002-03. But the latest official figures for the UK show that, for the year 2002-03, income inequality remains greater under Labour than under the 1979-97 Conservative governments of Margaret Thatcher and John Major. The main sources of income for different groups in 2003

Percentage of Gross Income Source of Income Earnings from work Investments Occupational pensions Miscellaneous Welfare Benefits and Tax Credits

Bottom Second Middle Fourth Top Quintile Quintile Quintile Quintile Quintile 35 3 4 3 55 55 2 5 3 35 74 2 6 2 16 84 3 5 2 7 87 6 4 1 2

Overall

77 4 5 2 13

The reality is that there are powerful forces at work in the British economy (and specifically within our labour market) that are increasing the gap between rich and poor. In particular the incomes of the most affluent households have raced ahead of relatively poorer families. Thus one can argue that the government has through its redistribution policies to run simply to stand still. Without Labours commitment to redistribution, the level of income inequality would be even higher than it is now. Labour fails to stop widening of income gap in the UK New data on the extent of relative poverty in Britain has found that the Labour government's main taxation and welfare benefit changes since 1997 have managed to halt Britain's rising inequality but failed to significantly reverse the growing gap in incomes between rich and poor that opened up during Margaret Thatcher's time as prime minister in the 1980s A major study from the independent think tank, the Institute for Fiscal Studies found that income inequality in Britain rose by 40% between 1979 and 2001, a larger increase than in any other developed country. The richest 1% of individuals (those on at least 82,000 a year after tax) - took 3% of national income in 1979 but 8% by 2000. And the gap between rich and poor was greater in 2002-03 than it was in 1996-7, when Labour came to power. According to the main report "Since 1998, New Labour's large, real terms increases in means-tested welfare benefits and tax credits significantly reduced inequality, but have not so far been sufficient to offset the effect of two decades during which benefit rates lagged behind earnings growth." Source: Institute for Fiscal Studies www.ifs.org.uk Which policies are most effective in reducing poverty? A government truly committed to making a serious dent in relative poverty would

Invest more resources in skills training and life-long education for all households particularly those of low income families in a bid to make a real effect on child poverty Making the tax system more progressive for example raising the higher rate of tax from 40% for the top-earning households Analysing carefully the effects of changes in indirect taxes such as VAT and excise duty in case they have a regressive effect on the overall distribution of income Focus more on targeting benefits by means-testing them according to financial need Increase the value of welfare benefits / tax credits in line with the annual percentage growth in median earnings so that the relative value of these benefits does not decline

Income tax payable: by annual income, in 2005/06 Number Total Average Average of tax rate of tax amount taxpayers liability (percentages) of tax (millions) ( () million) 0.1 1 0.1 5 2.9 369 2.0 126 3.5 1,580 5.1 445 6.1 7,560 9.8 1,220 5.1 11,500 13.0 2,260 6.4 24,000 15.4 3,760 4.3 28,900 17.9 6,690 1.5 25,900 25.7 17,000 0.5 34,200 33.4 71,100 30.5 134,000 18.2 4,390

4,8954,999 5,0007,499 7,5009,999 10,00014,999 15,00019,999 20,00029,999 30,00049,999 50,00099,999 100,000 and over All incomes Taking the long view

Percentage shares of original and post tax income in the UK 1993-94 Original income Bottom 2nd 3rd 4th Top Post-tax income Bottom 2nd 3rd 4th Top 2 6 14 25 52 2004-05 3 8 15 24 50

7 11 16 22 44

7 12 16 22 43

No policies to relieve poverty are risk free. Many are highly expensive and their effects often take many years to show through properly. The consensus among the leading academic researchers is that high employment, and a commitment to raise the skills and potential earnings of people towards the bottom of the pay ladder are the most effective and sustainable policies in the long term.

Reducing Poverty and Achieving Sustainable Development


At the 2005 World Summit, the international community reaffirmed its commitment to cut in half the number of people living in extreme poverty by 2015 and achieve the eight Millennium Development Goals (MDGs), a series of time-bound and quantified targets to attack poverty's root causes in a multi-dimensional way. The scale of the challenges, and the benefits of success to individuals, communities and the family of nation, are enormous: Global population is expected to increase from about 7billion today to 9.3 billion by 2050, and the population of the 48 Least Developed Countries will more than double to reach 1.7 billion. Almost all of the net increase in population is occurring in the urban areas developing countries, and in many of them, the number of people living in poverty is rising. Moreover, the supportive development environment that prevailed in the early years of this decade is now threatened as the world faces a global economic slowdown and a food security crisis. At the same time, the effects of climate change are becoming more apparent.
Dimensions of poverty

Substantial evidence suggests that slower population growth and investments in reproductive health and HIV prevention (particularly among adolescents), education, women's empowerment and gender equality reduce poverty. Carrying out the Programme of Action adopted at the International Conference Population and Development (ICPD) in Cairo and reaching its goal of universal access to reproductive health information and services by 2015 is an essential condition for achieving the MDGs. A central premise of the ICPD is that the size, growth, age structure and rural-urban distribution of a country's population have a critical impact on its development prospects and on the living standards of the poor. Poverty is multidimensional: impoverished people are deprived of services, resources and opportunities, as well as income. The ICPD realized that investing in people -- and empowering individual women and men with education, equal opportunities and the means to determine the number, timing and spacing of their children --could create the conditions to allow the poor to break out of the poverty trap.
Critical investments for poverty reduction

The countries in which poverty levels are the highest are generally those that have the most rapid increases in population and the highest fertility levels. Countries that have reduced fertility and mortality by investing in universal health care, including reproductive health, as well as education and gender equality, have made economic gains. A 2001 study of 45 countries, for example, found that if they had reduced fertility by five births per 1,000 people in the 1980s, the average national incidence of poverty of 18.9 per cent in the mid-1980s would have been reduced to 12.6 per cent between 1990 and 1995.

How do investments in reproductive health, education and gender equality reduce poverty?

Enabling people to have fewer children contributes to upward mobility and helps to stimulate development. When women can negotiate their reproductive health decisions with men, this exercise of their rights leads to an increased decision-making role within families and communities that benefits all. Because smaller families share income among fewer people, average per-capita income increases. Fewer pregnancies lead to lower maternal mortality and morbidity and often to more education and economic opportunities for women. These, in turn, can lead to higher family income. As women become more educated, they tend to have fewer children, and participate more fully in the labour market. Families with lower fertility are better able to invest in the health and education of each child. Spaced births and fewer pregnancies overall improve child survival. Sexual and reproductive health services are key to curbing HIV. The pandemic is killing large numbers of people in their most productive years, increasing the ratio of dependents to the working-age population. Preventing AIDS-related disabilities and premature deaths translates into a healthier, more productive labour force that can improve a countrys economic prospects Many developing countries have large youth populations. Reproductive health programmes that address the greater vulnerability of adolescents to unprotected sex, sexual coercion, HIV and other sexually transmitted infections, unintended early pregnancies and unsafe abortions, and enable young women to delay pregnancy and marriage are important factors in breaking the intergenerational cycle of poverty. Investments in reproductive health, particularly in family planning, that result in lowered fertility can open a one-time only 'demographic window' of economic opportunity.