Reducing the Consequences and Costs of Poverty through Consumption Insurance

Abstract

How much income does someone need to no longer be poor? Many challenges arise when objectively defining needs and income adequacy with the intent of establishing an income threshold above which to raise Canadians. Therefore, we cannot be sure that such a threshold will reduce the consequences of poverty, such as homelessness and food insecurity. Instead, we should ask, can we improve the wellbeing of someone who is likely in poverty? That we can do by increasing income and/or eliminating some of the volatility of income and/or its purchasing power with consumption insurance. Many policy instruments are available for reducing the consequences of poverty and improving wellbeing, and some of them may require changing how we transfer income and support households, even if we cannot politically find the will to increase how much we are prepared to transfer. A poverty reduction strategy that seeks to improve the ability of households to insure consumption in the face of budget shocks would improve the adequacy of any level of income, thereby reducing the costs and sharp consequences of poverty.