Breaking news! The president has made an announcement regarding federal student loan forgiveness.
Refi now and save money before rates rise again. Learn more

Tips for Overcoming Situational Poverty

By Bob Haegele · August 30, 2022 · 9 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Tips for Overcoming Situational Poverty

There are unfortunately many things in life that can rock a person’s financial stability, ranging from divorce to a devastating flood. Situational poverty is a type of poverty that occurs suddenly in circumstances such as these —,say, due to a life event or a natural disaster.

If you’re in the grip of a situation like this, it can feel impossible to get back on your feet. But it is indeed possible to overcome situational poverty. Using a variety of techniques, you can pull yourself out of a difficult and painful moment.

Read on to learn important information and advice, including:

•   What is situational poverty?

•   What are the causes of situational poverty?

•   What can be done to break the cycle of poverty?

What Is Situational Poverty?

Situational poverty is a type of poverty that is the result of a sudden or severe crisis. It usually has a specific cause or triggering event, and the financial difficulties may be only temporary. Those in situational poverty may have ways to steadily improve their finances.

This is in contrast to generational poverty, where at least two generations of a family are born into poverty. In this case, poverty is largely the result of circumstance; people don’t have the knowledge or skills to escape poverty, so often their finances do not improve.

Reasons for Situational Poverty

Situational poverty is often the result of a sudden or severe crisis in a person’s life. While there are many events that may lead to situational poverty, they are often temporary. Here, a look at some of the triggers that can cause this sort of disadvantaged scenario.

Being Born Into a Disadvantaged Background

Being born into a disadvantaged background can contribute to situational poverty; it can also be a factor in generational poverty, which requires at least two generations to be born into poverty.

In terms of situational poverty, if you were born into poor circumstances, even if your parents had been wealthier earlier in their life, it may still be difficult for you to get ahead financially. You might face issues like lack of access to medical care and educational resources. You don’t get that boost into financially stable adulthood that some people do.

Making Bad Financial Decisions

When you are grappling with poverty, you may wonder, why am I so bad with money? But it’s a common enough situation to make a wrong money move and wind up in poverty. Perhaps you made a bad investment or took on a large debt (say, a mortgage) that you couldn’t keep up with. Or maybe you poured all your savings into a business idea that didn’t succeed. Sadly, these things happen every day. In some cases, the consequences of these sorts of decisions can trigger situational poverty.

Experiencing an Unfortunate Tragedy

It’s painful to think about it, but there are many types of tragedies that can send a person’s finances into a downward spiral. For instance, you might lose your house in a hurricane or your spouse (with whom you share your finances) might die unexpectedly. These events can leave a person without the means to live above the poverty line.

Lack of Good Education

Education is a path out of poverty, and sadly, the inverse is true: Not getting a solid education can lead to a person not succeeding financially. They may lack the skills to earn higher wages.

Another poverty trigger: how little financial education most Americans receive. According to the Council for Economic Education, as of 2022, just 23 of the 50 U.S. states require personal finance education as a requirement for high school graduation. When a person lacks a good financial education, they might have bad money management habits, such as indulging in compulsive or impulsive shopping as stress relief or investing in a dicey business proposition. These, in turn, could contribute to a person living in poverty.

Tips for Breaking the Vicious Cycle of Poverty

The scenarios above reveal some of the ways that a person can slip into poverty. Once in that situation and possibly struggling to pay bills, a person can feel it’s impossible to climb out of it. Fortunately, there are several paths that may help you rise up and get on better financial footing. Here, some ideas for how to get out of poverty:

1. Getting a Sound Education

A good education — and specifically a good financial education — is one of the first steps toward getting out of poverty. While financial education classes in school are ideal, you can still learn the basics on your own, even as an adult, such as how to have better money management.

For example, the FDIC’s How Money Smart Are You? can help you learn the basics. Many universities and organizations also have personal finance courses for adults. You will likely also find online courses as well as books available that can quickly and effectively boost your financial IQ and guide you towards making money-smart choices.

2. Having a Close Mentor

Having a great mentor is one of the best ways to learn any skill, and the same applies to escaping situational poverty. A financial mentor can help you learn how to budget, save, and ultimately break the cycle of poverty.

There are a few places you can find a financial mentor. You can ask someone you know personally who is good with money, or you can look online for a suitable candidate. Some organizations offer financial mentorship programs, such as T. Rowe Price and the Financial Alliance for Women.

If you search on the internet, be wary. You might ask people in your network to suggest someone, which will help ensure the person has been properly vetted. The last thing you want when you are in poverty is someone who will waste your time or charge a fee and not deliver.

3. Working With Well-Informed Organizations

Another aspect of growing your financial literacy and learning how to overcome situational poverty is to work with trusted organizations. Knowledge is power, and you can tap these resources to learn everything from personal finance basics for beginners to more advanced topics.

Organizations specialize in different aspects of personal finance that could be holding you back. For example, the National Foundation for Credit Counseling (NFCC) helps people who are saddled by large amounts of debt. Another organization, Jump$tart, helps educate students on personal finance. Operation Hope provides financial education to underserved communities.

4. Utilizing Community and Government Resources

There is no shortage of community and government resources that can help if you are experiencing situational poverty. Churches, schools, community centers, and public libraries can offer support within your community.

Beyond your community, there are extensive government resources that can also help. For example, you might qualify for benefits like SNAP (Supplemental Nutrition Assistance Program) or the child tax credit. There are dozens of government programs that use poverty as a qualifying criterion. The U.S. Department of Health & Human Services (HHS) has a list of programs on its website.

5. Changing Your Money Mindset

Your mindset can hold you back just as much as it can empower you. It’s worthwhile to try to improve your money mindset. Something that is important to remember is that situational poverty is often temporary.

This is especially true if a bad financial decision or a natural disaster was a major contributor to your lack of funds. These are passing, albeit difficult, moments. By leveraging some of the resources mentioned in this article and practicing financial self-care, you can make progress.

6. Setting Financial Goals

Setting financial goals is important whether you are experiencing poverty or not. But it is even more important when you are hoping to build up your financial resources. Money goals can help you work toward something specific. Take a minute to map out what steps you want to take to move through your situational poverty. Some common goals are developing a budget with positive cash flow and paying down high-interest credit card debt.

Getting specific in this way can be very helpful. You could create a budget and decide to save $25 per week by cutting back on eating out. You would then be able to put that extra money toward your debt. An extra $100 per month can go a long way..

7. Cutting Expenses and Spending Wisely

One aspect of budgeting that can help you pull yourself out of poverty is cutting expenses, as was just mentioned. There are a variety of ways to do this. If you are overspending, you might use the 30-day rule, which involves waiting a full 30 days before making a purchase, so you see if the impulse to spend wears off. It often does. This tactic can help you stop overspending and save money.

Also review ways to lower your monthly expenses. This is where having discipline with money can help. For example, if you have any streaming services, you can pause them until you have your finances in order. Or if you have a cell phone plan, you can switch to a prepaid plan so you aren’t being charged automatically and can take control of your spending. You might also negotiate lower interest rates by calling your credit card issuer; this tactic may yield rewards.

8. Paying Down Your Debt

On the topic of debt, it’s important to recognize that borrowing money can be expensive. Carrying balances on your credit cards, for example, keeps you paying interest, month after month.

If you have large amounts of debt, one of your first priorities should be to pay down those with the highest interest rate first. You might look into a balance transfer credit card, which will give you no or low interest for a period of time. That can help you whittle down debt as it gives you some breathing room from a high APR. Or you might take out a lower interest personal loan to consolidate your debt. Working with a non-profit credit counseling organization is another option to help you manage this common aspect of poverty.

Recommended: What is the Average Credit Card Interest Rate?

9. Avoiding Payday and Predatory Loans

Payday loans offer cash advances before payday to those who need cash quickly, but this money infusion will really cost you. These loans typically have extremely high interest rates. Even with state laws limiting fees to no more than $30 per $100 borrowed, you could still end up paying the equivalent of 400% interest or more. And if you are unable to pay back a payday loan, you may end up in a cycle that has you paying much, much more than the amount of the original loan.

Unfortunately, those who are experiencing poverty may have few options in terms of accessing cash. Not having an emergency fund can compound this problem. Before you turn to payday loans, however, consider the resources in this article. Talk to a local credit union, investigate what are known as bad credit loans (read the fine print carefully), or perhaps start a side hustle to make more money.

10. Making Saving a Priority

Saving should always be a priority, but situational poverty can highlight its importance. Because you are already financially vulnerable, any expense you aren’t expecting could really rock your situation. A big medical or car repair bill could be a huge problem.

That said, you may not have the means to save very much if you are experiencing poverty. But you shouldn’t worry too much about the amount. Any amount that you can set aside — even $15 per week – can help. You can always increase that amount later as your finances improve. You can put your money in a high-yield savings account and earn some extra interest on it as you build your savings (typically the best rates are found at online banks). This money can create a cash cushion in your checking account or bolster an emergency fund.

11. Finding Out Where You Stand

Finding out where you stand can be a powerful exercise. We tend to be our own biggest critics, and that applies to finances, too. When you take a look at the numbers (go ahead and really study your income, cash outflow, assets, and debt), you might find you are doing better than you think.

Granted, this may not be the case when you first find yourself in situational poverty. But as you start to work on things, you might find your debt declining. Or that your savings by age is better than you expect. That can give you the confidence boost you need to keep exercising good financial habits and continue to improve your situation.

Also, even if you are in the midst of situational poverty and your status isn’t great, you will at least know exactly where you are. That benchmark will be what you build from.

12. Comparing Your Struggle With Others

When done properly, comparing your struggle to others can again help you gain perspective and perhaps realize that you are not alone in your journey through situational poverty. Reading or listening to stories of those who have overcome harsh financial realities can not only be inspiring, it can provide some moneywise tactics to try.

Another avenue to consider is accessing local help. Talking about your struggles isn’t always easy, but community resources might give you a safe space to do so. You might find that even though things seem difficult right now, you are doing well considering where you started.

The Takeaway

Situational poverty is a type of poverty typically caused by a life event, such as a divorce, severe health problems (and the resulting bills), or a natural disaster. This type of poverty is usually temporary and can be overcome by boosting your financial education, accessing community and government resources, and prioritizing debt elimination and saving.

One way to make saving a priority is with a SoFi Bank account. When you open an online bank account with direct deposit, you’ll earn a super competitive APY, and qualifying accounts can access their paycheck up to two days early.

With no account fees and up to 2.00% APY, you’ll earn more interest in one week than you would in one year in a big bank’s checking or savings account—so you can get the most out of your money.

FAQ

How can I overcome a poverty mindset?

In terms of how people can get out of poverty, overcoming one’s mindset is a key step. It can be very important to realize that situational poverty is temporary and that you have ways to improve it. This will help you feel empowered to make the changes necessary to improve your finances.

How do I know if I am poor or not?

The federal poverty guideline for 2022 for the lower 48 states and D.C. is an income of $13,590 per year. For Alaska and Hawaii, the guidelines are $16,990 and $15,630, respectively.

How many people are in situational poverty?

It is difficult to know exactly how many people live in situational poverty, in part because it is often temporary. However, a large number of people live in poverty in general. In America, the overall poverty rate was 14.45 in February 2022.


Photo credit: iStock/malerapaso

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOBK0722004

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender